DP16806 Superstar Returns

Author(s): Francisco Amaral, Martin Dohmen, Sebastian Kohl, Moritz Schularick
Publication Date: December 2021
Keyword(s): Asset Returns, housing risk, regional housing markets, superstar cities
JEL(s): G10, G12, N90, R21, R31
Programme Areas: Financial Economics, International Trade and Regional Economics, Economic History, International Macroeconomics and Finance
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16806

We study long-term returns on residential real estate in 27 "superstar" cities in 15 countries over 150 years. We find that total returns in superstar cities are close to 100 basis points lower per year than in the rest of the country. House prices tend to grow faster in the superstars, but rent returns are substantially greater outside the big agglomerations, resulting in higher long-run total returns. The excess returns outside the superstars can be rationalized as a compensation for risk, especially for higher co-variance with income growth and lower liquidity. Superstar real estate is comparatively safe.