Research on Real Estate by Christophe Spaenjers Accepted by The Review of Financial Studies

The Finance Department at HEC Paris is pleased to announce that Associate Professor Christophe Spaenjers has had his research paper on the profitability of real estate accepted for publication in the Review of Financial Studies, one of the world’s top three finance journals. The research is in collaboration with David Chambers from University of Cambridge and Eva Steiner from Penn State University.

How profitable is real estate as an investment? Answering this question is not straightforward for several reasons. First, historical price databases often do not adjust adequately for improvements in the average quality of real estate over time. Second, information on the rental income generated by real estate ownership is hard to obtain. Third, property-level data on maintenance expenditures and other costs are typically not available.

A recent paper by Christophe Spaenjers, “The Rate of Return on Real Estate: Long-Run Micro-Level Evidence”, accepted for publication in The Review of Financial Studies, addresses these measurement issues by exploiting a unique empirical setting. 

The paper studies the residential, commercial, and agricultural real estate holdings of four colleges in Cambridge and Oxford over the period 1901-1983. From the archives of these colleges, the authors collected detailed price, income, and cost data. Based on this new data set, they compute annualized real total returns, including both capital gains and income but net of costs, ranging from just 2.3% for residential to 4.5% for agricultural real estate. 

They conclude that real estate—and housing in particular—is a less profitable investment in the long run than suggested by prior research.
 

Learn more about Professor Spaenjers’ research, explained on Knowledge@HEC.