More from the recent working paper by Oscar Jorda, Katharina Knoll, Dmitry Kuvshinov, Moritz Schularick, and Alan Taylor (“The Rate of Return on Everything, 1870–2015“). (Previous blog post about the return on residential real estate.)
- Return data for 16 advanced economies over nearly 150 years …
- …on the income and capital gains (and thus, total returns) from equities, residential housing, government bonds, and government bills.
- Real returns average 7% p.a. for equity, 8% for housing, 2.5% for bonds, and 1% for bills.
- Housing returns are much less volatile than equity returns.
- Real interest rates have been volatile over the long-run, sometimes more so than real risky returns. Real interest rates peaked around 1880, 1930, and 1990. Current low real interest rates are “normal.”
- Risk premia have been volatile, but at lower than business cycle frequencies.
- r − g is rather stable in the long run and always positive. The difference rose during the end of the 19th and 20th century.
On Alphaville, Matthew Klein discusses recent work by Oscar Jorda, Katharina Knoll, Dmitry Kuvshinov, Moritz Schularick, and Alan Taylor (“The Rate of Return on Everything, 1870–2015“) according to which
Residential real estate, not equity, has been the best long-run investment over the course of modern history.
… but they didn’t calculate the returns most homeowners actually experience. Most people borrow to buy housing and most people live in their properties without renting them out. This makes a big difference.
… Net rental income has historically accounted for half of the total returns from owning housing. It’s also far less volatile, dramatically boosting the Sharpe ratio compared to what you would get just by looking at changes in house prices.
Housing has beaten stocks since 1950 because rental income has been better than dividend income, not because house prices have grown more than stock prices.
On his blog, Tyler Cowen summarizes the economics in Theodor Herzl’s “The Jewish State.”
Herzl favored selling European homes and businesses of departing Jews and buying land in Argentina or Palestine, at a profit, through a land acquisition company incorporated in London. Poor Jews from Romania and Russia would supply cheap labor and be rewarded by their own houses eventually. Herzl favored short working weeks, a democratic monarchy or the aristocratic republic of Renaissance Venice.
How many years of care in a nursing home does a typical single family house buy? In Der Spiegel, Christina Elmer, Patrick Stotz und Achim Tack have done the math for Germany. Accounting for price variation in care and real estate yields large regional differences: 3 years in poor regions in Eastern Germany versus 40 years in downtown Munich (see the map in the article).
The Economist reports about a new book by Dag Detter and Stefan Fölster, “The Public Wealth of Nations.” The authors argue that public assets should be managed through holding companies with professional managers and no direct government intervention.
The book’s website.
The Economist reports about house price trends. The table below lists price changes in some markets. More data from The Economist.
The (once?) famous b92 station and Christen Farmer‘s b92 blog “Grumpy in Belgrade” (also published as a book). Nicola Tesla museum and airport. Corruption measures compiled by Transparency International. Euro Money country risk assessment. Saint Sava’s Temple, “Belgrade’s Sagrada Família.” Property market and country assessment by Global Property Guide.