Estimating the Excess Returns to Housing at a Disaggregated Level: An Application to Sydney 2003–201

35 Pages Posted: 28 Aug 2014

See all articles by Daniel Melser

Daniel Melser

Moody's Economy.com

Adrian D. Lee

Deakin University - Department of Finance (Property and Real Estate); Financial Research Network (FIRN)

Date Written: Fall 2014

Abstract

The returns to housing are particularly important because this asset class makes up such a large fraction of household wealth. Yet they are not straightforward to calculate given both the heterogeneity in homes and the fact they sell only infrequently. We outline a methodology for constructing the excess returns to housing at a disaggregated level, essentially that of the individual home. Our approach explicitly takes account of the inherent risk in homeownership with regard to the capital gain or loss component of housing returns. This approach is applied to a rich data set for Sydney, Australia, from 2003Q1 to 2011Q2. Our findings indicate that the returns to housing are on average quite weak though they exhibit significant diversity across dwelling types and regions. Excess returns are also strongly influenced by assumptions regarding the level of risk aversion.

Suggested Citation

Melser, Daniel and Lee, Adrian D., Estimating the Excess Returns to Housing at a Disaggregated Level: An Application to Sydney 2003–201 (Fall 2014). Real Estate Economics, Vol. 42, Issue 3, pp. 756-790, 2014, Available at SSRN: https://ssrn.com/abstract=2488251 or http://dx.doi.org/10.1111/1540-6229.12057

Daniel Melser (Contact Author)

Moody's Economy.com ( email )

Level 10
1 O'Connell St
SYDNEY, 2000
Australia

Adrian D. Lee

Deakin University - Department of Finance (Property and Real Estate) ( email )

70 Elgar Road
Melbourne, VIC 3125
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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