Housing Yields

This paper investigates heterogeneity in residential property yields using rental and sale listings from a major German online real estate platform between 2007 and 2017. Equipped with property-level rent-to-price ratios obtained by matching properties for sale and for rent, we show that these yields strongly co-move with regional factors, such as population age structure, industry structure, housing supply rigidities, and the liquidity and size of the housing market. Differences are particularly pronounced between globally relevant cities and other areas. Despite the importance of regional factors, the degree of unexplained heterogeneity in yields is puzzlingly high relative to equity yields, whose variation can be largely understood through a few systematic factors. Specifically, a substantial fraction of housing yields heterogeneity is explained neither by local factors nor by an extensive array of property-specific observable features, possibly pointing to the crucial role of idiosyncratic factors, within-city aggregation effects, as well as of informational and regulatory frictions.