Idiosyncratic Risk in Housing Markets

Giacoletti, Marco

doi:10.2139/ssrn.2995323

Cited by 14 publications

(13 citation statements)

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“…Note that months between transactions jt is negative and significant at 1% in all specifications, which coincides with findings for the U.S. inGiacoletti (2017).13 As a convention, we provide heteroskedasticity and autocorrelation robust standard errors for all results. We also include separate cluster robust standard errors for each table's main result.…”

supporting

confidence: 69%

“…Higher employment volatility could generate fluctuations in housing demand, which would in- 4 Flavin and Yamashita (2002) provide the first examination of idiosyncratic volatility at the property level. Giacoletti (2017) documents idiosyncratic variation in house price volatility within the Los Angeles, San Diego, and San Francisco metropolitan areas. Landvoigt et al (2015) examines San Diego and finds that ZIP codes with lower house prices in 2000 experienced greater capital gains volatility leading up to the Great Recession.…”

Section: Introductionmentioning

confidence: 99%

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Manufacturing decline and house price volatility

Hull

Olovsson

Walentin

et al. 2022

Review of Economic Dynamics

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Using a unique dataset of all Swedish housing transactions over the 2009-2017 period, we find that an increase in manufacturing's share of employment is positively associated with house price growth volatility and negatively associated with risk-adjusted housing returns. Both effects appear to be related to manufacturing's impact on firm concentration and employment volatility. Moreover, as we demonstrate in an application, our results have implications for portfolio choice. They also suggest that the manufacturing decline since 1970 could account for a 32% reduction in house price volatility in Sweden, and similar reductions in the U.S., U.K., and Japan.

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supporting

confidence: 69%

Section: Introductionmentioning

confidence: 99%

Manufacturing decline and house price volatility

Hull

Olovsson

Walentin

et al. 2022

Review of Economic Dynamics

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“…However, only one third of residential property is investable, compared to two thirds of commercial. 3 As a result, housing does not begin to represent the investable 2 Recent literature on this topic includes Sagi (2018) and Giacoletti (2019) for real estate and Lovo and Spaenjers (2018) for art.…”

Section: Measurement Problems In Prior Literaturementioning

confidence: 99%

The Rate of Return on Real Estate: Long-Run Micro-Level Evidence

2019

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We provide evidence that direct real estate investments are less profitable and more risky in the long run than previously thought. We hand-collect property-level data on realized income, expenses, and transaction prices from the archives of four large institutional investors in the U.K.-historically important Oxbridge colleges-for the period 1901-1970. Gross income yields mostly fluctuate around 5%, but trend to lower (higher) levels for agricultural and residential (commercial) real estate near the end of our sample period. Operating costs mean that net yields are about one third lower than gross yields on average. Long-term real income growth rates are between -1.0% and 0.0% for the three main property types. Together these findings imply limited long-run capital gains and real annualized net total returns of less than 4% across all property types. Moreover, we find substantial volatility in net income streams and variation in relative price levels across transacted properties, revealing the considerable idiosyncratic risks associated with real estate investments. AbstractWe provide evidence that direct real estate investments are less proftable and more risky in the long run than previously thought. We hand-collect property-level data on realized income, expenses, and transaction prices from the archives of four large institutional investors in the U.K.-historically important Oxbridge colleges-for the period 1901-1970. Gross income yields mostly fuctuate around 5%, but trend to lower (higher) levels for agricultural and residential (commercial) real estate near the end of our sample period. Operating costs mean that net yields are about one third lower than gross yields on average. Long-term real income growth rates are between -1.0% and 0.0% for the three main property types. Together these fndings imply limited long-run capital gains and real annualized net total returns of less than 4% across all property types. Moreover, we fnd substantial volatility in net income streams and variation in relative price levels across transacted properties, revealing the considerable idiosyncratic risks associated with real estate investments.JEL Classification: G11, G12, G23, N20, R30.

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“…It has recently been argued that this scaling property is structurally violated for property prices (e.g. Giacoletti, 2017;Sagi, 2020). In our model, these violations are explained by persistent rent growth, such that changes in property values are (partially) predictable even as the valuation of these properties is unbiased.…”

Section: Value Of Existing Structuresmentioning

confidence: 99%

The Option Value of Vacant Land: Don't Build when Demand for Housing Is Booming

Lange

Teulings

2021

SSRN Journal

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Urban structures and urban growth rates are highly persistent. This has far-reaching implications for the optimal size and timing of new construction. We prove that rational developers postpone construction not because prospects are gloomy, but because they are bright. The slow mean reversion in urban growth rates for the Netherlands and the United States (estimated at ∼0.07 per annum) implies that a substantial share of cities should optimally postpone construction due to high growth. Observed heterogeneity in floorspace density across cities can be explained not by differences in population levels, but in growth rates.

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Idiosyncratic Risk in Housing Markets

Cited by 14 publications

References 0 publications

Manufacturing decline and house price volatility

Manufacturing decline and house price volatility

The Rate of Return on Real Estate: Long-Run Micro-Level Evidence

The Option Value of Vacant Land: Don't Build when Demand for Housing Is Booming

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