Housing Market: Leverage and Valuation

Important results from the project

The project resulted in the paper “Why Women Earn Lower Real Estate Returns” by Laurent Bach, Anastasia Girshina and Paolo Sodini. We confirm the existing Danish and US findings that single women’s returns gross of renovations are lower than single men’s by more than 2pp, that half of this gap is due to market timing, and that it is concentrated in short holding period. Yet, we discover that women are much less likely to undertake renovations and to specialize in real estate professional activities. Once these differences are accounted for, we do not find any gender gap in real estate returns.

Expected long term effects

We set out to study the determinants of house price growth and fluctuations. As we were checking the quality of the data, we stumbled on a result that dramatically qualifies the existing findings. The paper has also implications for the original goal of the project. We found that professional real estate transactions represent a very large percentage of the market volume even though they constitute only a minor fraction of the housing stock value. Any investigation of housing price determinants needs to take into consideration professional originated trading activity.

Approach and implementation

We have created a register with all apartment transactions in Sweden from 1999 to 2016. We have collected data on apartment renovation costs, which is uniquely available due to the capital gain tax being levied on primary residences in Sweden. We have employed state of the art house price index methodologies to value all apartments in Sweden. We have evaluated the systematic and idiosyncratic risk of real estate transactions using cross-sectional asset pricing techniques. We used panel data econometrics to evaluate the determinants of the gender gap in real estate markets.