Abstract
Design/methodology/approach
We assess the risk-adjusted excess return that results from adding multi-family properties to a mixed-asset portfolio that aims to track wage growth. We also analyse the macroeconomic determinants of asset returns. Finally, we test whether a causal relationship exists between the growth rate of real wages and that of real net operating income.
Purpose
Using data spanning 145 years for Sweden, we investigate the benefits of holding multi-family properties for investors who aim to hedge wage growth.
Findings
The benefits from holding multi-family properties are the greatest for low-risk allocation approaches. For more risky strategies, the role of real estate is more muted, and it varies greatly over time. Holding real estate was most beneficial during the first two decades of the 21st century. Multi-family properties are found to be the only asset class to be positively related to wage growth. We show that the net operating income acts as the transmission channel between wages and property returns.
Practical implications
The paper assesses whether the growing interest of pension funds for multi-family properties is warranted in the context of a portfolio that aims to track wage growth.
Originality/value
Using long term data makes it possible to use a rolling windows approach and hence to consider multiple outcomes for an allocation strategy over a typical investment horizon. This permits to assess the dispersion of performance across several periods rather than just one as is commonly done in the literature. Our results show that the conclusions that would be drawn from looking at the past two or three decades of data differ substantially from those for earlier time periods.
We assess the risk-adjusted excess return that results from adding multi-family properties to a mixed-asset portfolio that aims to track wage growth. We also analyse the macroeconomic determinants of asset returns. Finally, we test whether a causal relationship exists between the growth rate of real wages and that of real net operating income.
Purpose
Using data spanning 145 years for Sweden, we investigate the benefits of holding multi-family properties for investors who aim to hedge wage growth.
Findings
The benefits from holding multi-family properties are the greatest for low-risk allocation approaches. For more risky strategies, the role of real estate is more muted, and it varies greatly over time. Holding real estate was most beneficial during the first two decades of the 21st century. Multi-family properties are found to be the only asset class to be positively related to wage growth. We show that the net operating income acts as the transmission channel between wages and property returns.
Practical implications
The paper assesses whether the growing interest of pension funds for multi-family properties is warranted in the context of a portfolio that aims to track wage growth.
Originality/value
Using long term data makes it possible to use a rolling windows approach and hence to consider multiple outcomes for an allocation strategy over a typical investment horizon. This permits to assess the dispersion of performance across several periods rather than just one as is commonly done in the literature. Our results show that the conclusions that would be drawn from looking at the past two or three decades of data differ substantially from those for earlier time periods.
| Original language | English |
|---|---|
| Pages (from-to) | 3-27 |
| Number of pages | 25 |
| Journal | Journal of Property Investment & Finance |
| Volume | 42 |
| Issue number | 1 |
| Early online date | 14 Sept 2023 |
| DOIs | |
| Publication status | Published - 6 Feb 2024 |
Bibliographical note
The authors thank Daniel Waldenström, Dmitry Kuvshinov, and MSCI for providing data. The comments of Jan Bohlin, Stephen Lee, Zongyuan Li, Bryan MacGregor, Rainer Schulz as well as of two anonymous reviewers are gratefully acknowledged. The participants at the 28th annual European Real Estate Society (ERES) conference, the 14th ReCapNet conference, the 39th annual American Real Estate Society (ARES), the University of Aberdeen real estate research seminar and the Skye real estate conference also provided many valuable comments. Any errors are the authors'.Keywords
- multi-family properties
- mixed-asset portfolio
- pension fund
- wages
- long run
- sweden