Rental Growth Research Articles

House Prices and Rents

Abstract Variation in monthly metro area house prices unrelated to expected rents clouds the information about future rents in price-rent ratios and lagged changes in house prices. The variation in house prices unrelated to expected rents is, however, correlated across areas, and the problem is mitigated by measuring rent growth regression variables net of their monthly cross-section (across-area) means. This control for price variation unrelated to expected rents substantially enhances the information about future rents that we extract from price-rent ratios and lagged changes in house prices.

Capping Study Permits: Evaluating the Impact of International Students on Real Rent Growth in Canada

Housing affordability has become a critical policy issue in Canada as shelter costs have dramatically increased. This study examines the impact of international students on the growth of real rents in Canadian census metropolitan areas (CMAs) from 2004 to 2018. Using study permit data as a proxy for international student numbers, we establish a causal link between the influx of international students and real rent growth. To address endogeneity and control for CMA-specific factors, we employ an Ordinary Least Squares (OLS) model and a shift-share instrument. Our OLS estimates suggest that international student growth accounts for 1.15 percent of real rent growth. Further, using a two-stage least-squares (2SLS) model for robustness, we find that a 1 percent increase in per capita study permit growth (“dppr”) leads to a 1.31 percent increase in real rent growth (“grr”). These findings are significant for policy discussions on housing affordability and the potential impact of the 2024 study permit cap.

Price exuberance episodes in private real estate

In this paper, we investigate price exuberance episodes in the main UK commercial real estate sectors – retail, offices and industrials - over the period December 1986–April 2022. Using the Backward Supremum Augmented Dickey Fuller approach of Phillips et al. (2015a,b), we find that episodes of price explosiveness are asynchronous across sectors with only common phase being the period 2003–2007. We also conduct a multivariate probit analysis to identify factors that indicate the occurrence of price exuberance episodes and generate early signals for possible price bubble building. The predictors for price explosiveness differ by sector with more consistent signals obtained from the yield curve for retail and industrials, rent growth for offices and industrials, and inflation for retail and offices. A key implication of this study is that the study of price exuberance and bubbles in private real estate should be sector specific even within the same country.

Are milk quota prices a rational investment? Modeling quotas as financial assets

AbstractOur objective in this paper is to examine the growth of the price of farm milk quotas in Canada, to shed light on their patterns of growth within the last 15 years. Our quota price model is based on the Gordon growth model, supplemented by some important characteristics of the milk quota market. Our explanatory variables include the quota rental price, interest rate, and expectations of both price and quantity growth, all for the province of Alberta over the 2009–2023 time period. Our economic model of quota prices performs well by giving results with the predicted signs for all variables in our model and high levels of statistical significance except for expectations of quantity allocations when entered separately. The model has two variants, one with the expectation of growth in quota rents and the other with the expectation of growth in the quota asset price. Econometric issues related to time series problems are dealt with. The model allows calculation of policy risk, which shows an interesting pattern over this time period.

JUE insight: Differences in rent growth by income from 1985 to 2021 and implications for inflation

Shelter is a large share of household expenditures and therefore has a large weight in inflation measurement. Because rich and poor households tend to make different housing and location choices, does the shelter component of inflation differ across the income distribution? I calculate rent growth for households in each quintile of the income distribution from 1985 to 2021 and find modestly lower rent growth for lower-income groups. However, because lower-income households spend a larger fraction of total expenditures on housing, I find little difference across groups in headline inflation. Therefore, different housing and location choices have not generated materially different shelter components of inflation across the income distribution.

City characteristics, land prices and volatility

We develop a model that describes how city characteristics affect the volatility of real estate rents and values. The model includes agglomeration externalities, which amplify the effect of productivity shocks on population growth and rents, as well as city characteristics that constrain population growth. While growth constraints make rents more subject to productivity shocks because of the inelastic supply, they can also suppress the benefits of agglomeration, which has the effect of decreasing the sensitivity of rents to productivity shocks. Our dynamic model exhibits persistent rent growth and rent-to-value ratios that vary across cities and over time. In particular, we show that productivity shocks have a larger initial effect on rents in more constrained cities, but a greater long-term effect in less constrained cities.

Rent growth near rail stations after the Great Recession

This study provides an incisive analysis of U.S. rail station area rent trends from 2012 to 2016, post-Great Recession. Utilizing Ordinary Least Squares (OLS), Hierarchical Spatial Autoregressive (HSAR), and Geographically Weighted Regression (GWR) models, it uncovers complex interplays between rent changes and socioeconomic, as well as built environment factors. Key findings reveal that increased rents are associated with walkability, higher housing density, and predominantly White neighborhoods. Conversely, rent decreases correlate with diverse land use, higher Black population percentages, and locations further from rail stations or business districts. These results are critical for understanding rent dynamics in transit-oriented development areas, impacting diverse housing market sectors, including workforce and affordable housing. The study’s regional analysis highlights the need for geographically tailored approaches. This research informs policy on housing development and affordability, aiming to mitigate displacement risks for low-income, transit-dependent communities in gentrifying urban areas.

Modeling the Impact of Rent Growth Caps On Washington State’s Apartment Market

Modeling the Impact of Rent Growth Caps On Washington State’s Apartment Market

Rental sector liberalization and the housing outcomes for young urban adults

ABSTRACT Young adults increasingly rely on precarious and costly rental housing, particularly in major cities and liberalized housing markets. Amsterdam has a more regulated housing system, but increasing market-liberal logic in policy-making has led to considerable loosening of rent regulations in the last decade. One outcome has been the significant growth, and transformation, of liberalized rental housing. Drawing on city of Amsterdam survey data from 2005 to 2019, our analysis considers how recent policy and housing market shifts have generated and shaped housing inequalities for young adults. Where private rental growth was stimulated to fill the middle segment, our findings reveal that it has largely catered to affluent young adults. Households with less resources struggle to gain access, and pay more when they do. Our findings demonstrate that this variation of ‘generation rent” is not simply an outcome of market-liberal agendas, but is also shaped on a city-scale, partly through rental market restructuring.

Risk-return Performance of Residential Property Investment in Lagos, Nigeria: A Quantitative Survey Analysis From 2001 to 2021

Aim: To evaluate the risk-return performance of residential property investment between 2001 and 2021 in Lagos, Nigeria.
 Study Design: Quantitative Survey research.
 Place and Duration of Study: Eti-osa and Somolu LGA, Lagos State, 2022.
 Methodology: Survey with structured questionnaire collected primary data on non-owner-occupied residential property investments in Somolu and Eti-Osa, Lagos, Nigeria. Estate surveying and valuation firm provided the data. Analysis used descriptive statistics (charts, tables, standard deviation, and coefficient of variation) and trend analysis over 20 years (2001-2021) to assess risk-return performance. This included rental index, rental growth rate, standard deviation, and coefficient of variation.
 Results: In Eti-Osa, duplexes had a high expected return of 54.04% with a risk of 18.58. Bungalows and flats had lower returns of 44.61% and 41.8% with risks of 16.38 and 15.39, respectively. Duplexes performed best with a coefficient of variation of 0.34, followed by bungalows and flats at 0.37 each. In Somolu, self-contained and duplex properties performed best with returns of 19.12% and 19.08% but higher risks of 14.82 and 17.08. Bungalows and tenement buildings had returns of 15.5% and 15.32% with lower risks of 10.43 and 8.25. Self-contained apartments had the lowest return of 13.31% and low risk of 6.57, performing best in risk-return with coefficient of variation of 0.49. Overall, Eti-Osa properties performed better than Somolu.
 Conclusion: The study shows that rental prices experienced an overall upward trend, with flats and bungalows exhibiting higher rental growth rates compared to other property types. Appreciation rates varied across property categories, with duplexes in Eti-Osa and bungalows in Somolu showing higher average annual appreciation rates. Anticipated yield and risk varied among property types, with duplexes having the highest anticipated yield but also the highest level of risk. Therefore, this study recommends that investors prioritize flats and bungalows in Eti-Osa and Somolu, Lagos for higher rental growth and appreciation. Evaluate duplex risks, as they offer greater returns but entail elevated risk.

Assessment of Residential Real Estate Investment Performance in Lafia Metropolis, Nigeria

Investors are expected to be guided through investment performance measurement and analysis in order to safeguard against potential loss of investment returns or the capital invested. Whereas residential real estate (RRE) constitutes a significant part of the portfolios of individual and institutional investors across the globe, the assessment of risk-return performance of RRE investment in Nigeria generally has not been well researched. Investors in real estate (RE) in the Lafia city of Nasarawa State, like other cities in Nigeria, still rely on mere intuition, sales comparison and the rule of thumb in real estate investment decisions-making. Consequently, these ill-informed investors often venture into poorly conceived and subsequently financially disastrous real estate investment projects thereby failing to achieve their desired investment objectives. Hence, this research was conducted to evaluate the performances of RRE investment in Lafia metropolis of north-central Nigeria with a view to guiding existing and potential real estate investors and practitioners in the region in making informed property investment decision. A survey research design was adopted to collect transacted residential property value data from estate surveying and valuation firms as well as reputable estate agent offices in the study area. Mean scores, property value index and holding period return model were used to analyse the rental/capital value indices and total return performance respectively. The modified value-at-risk model was used to assess risk while the modified Sharpe ratio was used to evaluate the risk-return performance of RRE investment performance in the study area. The research findings revealed, among others, a progressive increase in rental and capital values of RRE within the study period. RRE investment showed an average rental growth of 6.8% per annum and capital value growth of 9.4% per annum. On the basis of investment returns, it was found that Angwan Doka outperformed other selected neighbourhoods in the study area with an average mean total return and risk-adjusted return of 13.76% and 0.80% per annum respectively while Shabu underperformed other locations with average mean total return and risk-adjusted return of 12.17% and 0.55% per annum. The study recommended, among others, that potential real estate investors should consider investing in residential real estate in Angwan Doka since this location gives higher total and risk-adjusted returns on residential property investment relative to other locations in the city.

The 2000s Housing Cycle with 2020 Hindsight: A Neo-Kindlebergerian View

Abstract With “2020 hindsight,” the 2000s housing cycle is not a boom–bust but a boom–bust–rebound. Using a spatial equilibrium regression in which house prices are determined by income, amenities, urbanization, and supply, we show that long-run city-level fundamentals predict not only 1997–2019 price and rent growth but also the amplitude of the boom–bust–rebound. This evidence motivates our model of a cycle rooted in fundamentals. Households learn about fundamentals by observing “dividends” but become over-optimistic in the boom due to diagnostic expectations. A bust ensues when beliefs start to correct, exacerbated by a price–foreclosure spiral that drives prices below their long-run level. The rebound follows as prices converge to a path commensurate with higher fundamental growth. The estimated model explains the boom–bust–rebound with a single shock and accounts quantitatively for the dynamics of prices, rents, and foreclosures in cities with the largest cycles. We draw implications for asset cycles more generally.

Can changing neighborhoods influence mental health? An ecological analysis of gentrification and neighborhood-level serious psychological distress-New York City, 2002-2015.

Neighborhood conditions influence people's health; sustaining healthy neighborhoods is a New York City (NYC) Health Department priority. Gentrification is characterized by rapid development in historically disinvested neighborhoods. The gentrification burden, including increased living expenses, and disrupted social networks, disproportionally impacts certain residents. To ultimately target health promotion interventions, we examined serious psychological distress time trends in gentrifying NYC neighborhoods to describe the association of gentrification and mental health overall and stratified by race and ethnicity. We categorized NYC neighborhoods as hypergentrifying, gentrifying, and not-gentrifying using a modified New York University Furman Center index. Neighborhoods with ≥100% rent growth were hypergentrifying; neighborhoods with greater than median and <100% rent growth were gentrifying; and neighborhoods with less than median rent growth were not-gentrifying. To temporally align neighborhood categorization closely with neighborhood-level measurement of serious psychological distress, data during 2000-2017 were used to classify neighborhood type. We calculated serious psychological distress prevalence among adult populations using data from 10 NYC Community Health Surveys during 2002-2015. Using joinpoint and survey-weighted logistic regression, we analyzed serious psychological distress prevalence time trends during 2002-2015 by gentrification level, stratified by race/ethnicity. Among 42 neighborhoods, 7 were hypergentrifying, 7 were gentrifying, and 28 were not gentrifying. In hypergentrifying neighborhoods, serious psychological distress prevalence decreased among White populations (8.1% to 2.3%, β = -0.77, P = 0.02) and was stable among Black (4.6% to 6.9%, β = -0.01, P = 0.95) and Latino populations (11.9% to 10.4%, β = -0.16, P = 0.31). As neighborhoods gentrified, different populations were affected differently. Serious psychological distress decreased among White populations in hypergentrifying neighborhoods, no similar reductions were observed among Black and Latino populations. This analysis highlights potential unequal mental health impacts that can be associated with gentrification-related neighborhood changes. Our findings will be used to target health promotion activities to strengthen community resilience and to ultimately guide urban development policies.

Private rental investment and socio‐spatial disadvantage in Sydney, Australia

AbstractThis article unpacks the connection between a growing cohort of small‐scale but purposive property investors and urban socio‐spatial restructuring. We analyse private rental housing as a tenure share to demonstrate its spatial correlation with the suburbanisation of socio‐economic disadvantage in Sydney, Australia, between 1991 and 2016. Then, we show how investors drive this emerging pattern by reference to the geography of property owners’ stated investment objectives—low capital outlay, rental yields, and capital growth prospects. We contend that the link between their small‐scale activities and the city’s changing socio‐spatial structure is an overlooked consequence of private rental sector (PRS) housing financialisation. Importantly, our focus on behaviours exhibited by small‐scale rental property owners in PRS financialisation transcends existing analyses that have concentrated on corporate entity activity in this space. That focus also contrasts with framings of private rental growth as a residual outcome of developments elsewhere in the housing market. Such work is significant because it demonstrates the impacts of real estate investment on urban form.

Rationality test in the housing market: Project‐level evidence from China

AbstractWe test whether investors rationally react to rent news when pricing houses. Previous literature on house pricing uses aggregated housing price and rent data to estimate the rent news. We analytically demonstrate that using aggregated data biases the rationality test because it forces researchers to estimate the rent news using the cross‐project average dynamic relationship among the housing return, rent growth, and macroeconomic dynamics and, hence, misses the heterogeneity in the dynamic relationship. Our empirical tests using proprietary project‐level housing data from China's megacities find that the bias from missing the heterogeneity is economically substantial.

Predicting US Housing Returns and Rent Growth Using the Loan-to-Value Ratio

Predicting US Housing Returns and Rent Growth Using the Loan-to-Value Ratio

Modeling the dynamic effects of macroeconomic factors on housing performance in Kenya

PurposeThis paper studies the dynamic effects of selected macroeconomic factors on the performance of the housing market in Kenya using Autoregressive Distributed Lag (ARDL) Models. This study aims to explain the dynamic effects of the macroeconomic factors on the three indicators of the housing market performance: housing prices growth, sales index and rent index.Design/methodology/approachThis study used ARDL Models on time series data from 1975 to 2020 of the selected macroeconomic factors sourced from Kenya National Bureau of Statistics, Central Bank of Kenya and Hass Consult Limited.FindingsThe results indicate that household income, gross domestic product (GDP), inflation rates and exchange rates have both short-run and long-run effects on housing prices while interest rates, diaspora remittance, construction output and urban population have no significant effects on housing prices both in the short and long run. However, only household income, interest rates, private capital inflows and exchange rates have a significant effect on housing sales both in the short and long run. Furthermore, household income, GDP, interest rates and exchange rates significantly affect housing rental growth in the short and long run. The findings are key for policymaking, especially at the appraisal stages of real estate investments by the developers.Practical implicationsThe authors recommend the use of both the traditional hedonic models in conjunction with the dynamic models during real estate project appraisals as this would ensure that developers only invest in the right projects in the right economic situations.Originality/valueThe imbalance between housing demand and supply has prompted an investigation into the role of macroeconomic variables on the housing market in Kenya. Although the effects of the variables have been documented, there is a need to document the short-run and long-term effects of the factors to precisely understand the behavior of the housing market as a way of shielding developers from economic losses.

지역별 주택의 시장근본가격(market fundamental price)추정에 관한 실증연구

In this study, the market fundamental price of house price was estimated from August 2001 to April 2022 in based on the present value model and compared with the actual house sale price.&#x0D; As a result, First, the pattern of the difference between the actual housing sale price and the market fundamental price of each model was similar in other regions except Incheon, and although it was not exactly the same, it was divided into four periods. Second, The market fundamental price of houses estimated according to the three models showed different volatility by period and region. Third, the estimate of the third model showed less volatility compared to the estimates of other models and closely followed the actual apartment sale price. Fourth, Factors the interest rate and rent growth rate which are factors constituting the market fundamental price had different effects depending on the period.

Dynamic analysis of Istanbul office markets with highest demand and office rent

From the 1980s onwards, restructuring of economy and globalization has increased the size and number of companies in Istanbul and demand for modern office space which cannot be provided in the old CBD due to construction restrictions. Thus, multi-center development has started in the city in order to answer to the growing demand for modern office markets. The present study investigated the growth and decline of office rents in office markets which have highest demand and office rents. According to the results of the study, while office rents in the office markets with growth potential have increased, that of the markets with supply increased dramatically between 2011 and 2016. On the other hand, while office rents in all of the office markets were sharply declined in 2021 due to devaluation of Turkish Lira against USD. Although the pandemic has made Work from Home (WFH) and Hybrid working models a global trend, A class office demand stayed strong due to well-being requirements on office area. Thus, it is expected to have a positive impact on the economy of the city.

High-precision monitoring of urban structures to understand changes in multiple ecosystem services

To safeguard the well-being of urban dwellers, it is vital to restore, protect and enhance urban green infrastructures (uGI), their related ecosystem services (ES) and the associated benefits for a large number of inhabitants. This study maps and monitors land cover between 2012 and 2018 in the fast-growing German city of Leipzig to produce precise information using OBIA and very high-resolution digital orthophotos. Based on this, this research pinpoints spatially differentiated multiple ES. Research has revealed that essential ES, which comprise regulating, socio-cultural and cultural-aesthetic services, have a multifunctional impact on the human urban habitat. The study provides insight into each ES type by evaluating specific classes of objects within the urban environment in a spatially explicit way and at a very high scale of resolution. In doing so, it illustrates variations in the provision of ES and renders visible disparities in the accessibility to uGI in Leipzig. By analysing the number and stands of trees and their respective height development, the study confirms that intensive management is successfully rejuvenating the urban forest, but also that foliage in this forest is suffering from drought. The mapping procedure reveals a high spatial and temporal variation in the rates of carbon storage. This is also the case for the provision of recreation areas which has an impact on the equitable distribution of ES to Leipzig’s inhabitants. Residential areas with a relatively high uGI on the outskirts of the city actually register lower market rents and rent growth rates than in those districts which lie closer to the city centre and have a comparably lower uGI. Thus, market rents and uGI have become decoupled in the fast growing city. In order to ensure and maintain the well-being of all residents in a fair way, fast growing cities like Leipzig must make even greater efforts in urban planning.