The Long Term Housing Yield
What is the long term housing yield?
Real time estimates of the long term housing yield:
Estimates of the long term yield rate rely on transaction prices, which in most cases were accorded 4-5 months before being recorded by the HM Land Registry. Therefore, our real-time estimates reflect market expectations with a lag of a few months.
December 2023: 2.72%
November 2023: 3.03 (0.31)
October 2023: 2.81 (0.16)
September 2023: 2.85 (0.13)
August 2023: 2.92 (0.14)
July 2023: 2.90 (0.13)
June 2023: 2.63 (0.11)*
* Standard errors are indicated in parentheses.
Comparison with 10-year-15-year forward rate:
Note: The HM Land Registry regularly updates data on housing transactions as new registrations come in, so the most recent estimates of the long term housing yield are subject to change as new data is added. Standard errors are larger for recent months due to more limited data availability.
Methodology:
The long term housing yield is estimated using a natural experiment approach in the UK from 2003 to present. Most apartments in the U.K. are sold as "leaseholds" — long duration leases starting at ninety years or more, issued by the ultimate owner of the property, or "freeholder''. The leaseholder can buy or sell the lease, giving each lease a series of market prices. Moreover leaseholders have the right to extend their lease conditional on paying freeholders the value of the lease extension. Lease extensions typically happen when the current lease has somewhere between 60 to 90 years left, and the typical extension is for an additional 90 years or more.
Bäcker-Peral, Hazell and Mian (2024) assembles a new data set on leasehold extensions and transactions from 2003 to the present, which can be used to estimate the long term housing yield. The latest draft of the working paper, which includes more details on the methodology used, can be downloaded here.