Take a quick look at a graph of population growth from 1870-2015. It has an incredibly steep curve. Now think about how that graph will look from 2015-2100. Likely, it will be drastically flatter.<p>Wouldn't this have a huge effect on real estate -- indeed, isn't that population graph the primary driver of what happens in the real estate market?<p>I'm not sure the last century provides a meaningful guide here.
Highlights:<p>> 1. <i>In terms of total returns, residential real estate and equities have shown very similar and high real total gains, on average about 7% per year.</i> ... <i>The observation that housing returns are similar to equity returns, yet considerably less volatile, is puzzling.</i><p>> 2. <i>We find that the real safe asset return has been very volatile over the long-run, more so than one might expect, and oftentimes even more volatile than real
risky returns.</i><p>> 3. <i>...our data uncover substantial swings in the risk premium at lower frequencies that sometimes endured for decades, and which far exceed the amplitudes of business-cycle swings.</i><p>> 4. <i>Comparing returns to growth, or “r minus g” in Piketty’s notation, we uncover a striking finding. Even
calculated from more granular asset price returns data, the same fact reported in Piketty (2014) holds true for more countries and more years, and more dramatically: namely “r >> g.” ...globally, and across most countries, the weighted rate of return on capital was twice as high as the growth rate in the past 150 years.</i>
I suspect that the issues with safe vs risky assets are a result of how screwed up the definition of economic risk is:<p>* Risk is defined by relatively short term visible price fluctuations, with "unusual" events removed from the model as "uncertainty".<p>* The risk model seems to use a Gaussian distribution, which doesn't fit the data particularly well.
I wasn't able to download the PDF but I read the summary article <a href="http://voxeu.org/article/rate-return-everything" rel="nofollow">http://voxeu.org/article/rate-return-everything</a><p>In the paper, do they attempt to take into account the costs of real estate investment over holding stocks when calculating total returns? Things like property taxes, maintenance, stamp duties, realtor fees, legal costs dealing with problem tenants, etc.? If not I wonder if those explain some of the mystery around real estate returns relative to stocks?
The PDF appears to be 2.9 MB and is taking a long time to download, possibly due to the source being "hugged" to death?<p>This appears to be an abstract, based on title: <a href="https://www.nber.org/papers/w24112" rel="nofollow">https://www.nber.org/papers/w24112</a><p><i>This paper answers fundamental questions that have preoccupied modern economic thought since the 18th century. What is the aggregate real rate of return in the economy? Is it higher than the growth rate of the economy and, if so, by how much? Is there a tendency for returns to fall in the long-run? Which particular assets have the highest long-run returns? We answer these questions on the basis of a new and comprehensive dataset for all major asset classes, including—for the first time—total returns to the largest, but oft ignored, component of household wealth, housing. The annual data on total returns for equity, housing, bonds, and bills cover 16 advanced economies from 1870 to 2015, and our new evidence reveals many new insights and puzzles.</i>
I wonder if there is a study of real estate investment returns in relation to demographics trends. For example, does poor demographical outlook (low births for instance) correlate with lower real estate ROIs later ?
I wonder if the extreme r - g divergence is helped by another factor: tax havens and hidden assets. GDP only includes things that can be counted and taxed; there have long been attempts to allow for the grey or black economy in GDP, but fundamentally it's dark matter that the owners are trying to hide.<p>But on the other end the assets are visible; we can count that there are X trillion dollars in bonds and Y trillion dollars in housing. We just can't work out who owns them because the trail goes dead in blind trusts in tax havens somewhere.<p>(There's a good paper on this that I can't find right now)
I was just thinking about this because Sears is in the process of closing something like 100 more stores. They were a behemoth of their time and now are barely staying a lot.<p>So many years of managerial incompetence and greed and market forces have completely eroded their dominance. I say eroded because they're not completely gone yet, and it's taken so long for them to glide down to this point.<p>It's just fascinating that company so large because reduced to so little over such a long span of time.
original link is dead (which could be the result of its sudden popularity on HN -- their entire server is quite slow for other content as well)...<p>archive.org has a mirror copy of this document,<p><a href="https://web.archive.org/web/20180105120132/https://www.frbsf.org/economic-research/files/wp2017-25.pdf" rel="nofollow">https://web.archive.org/web/20180105120132/https://www.frbsf...</a>
After taking a basic Mathematical Finance course, you'll find that nothing does better than the Prime Rate in the long term, unless you get lucky, or unlucky.