House Rent - Price Ratios : An International Comparison

Tenants have liquidity constraints that limit volatility in nominal rents, leading houses to become bond-like. The incidence of shocks on rental yields is near zero. For 1980 - 2014 in Germany and Japan, houses are bond-like, with tenants bearing less than 5% of asset-price shocks. In the United States and United Kingdom, houses are inflation-linked bonds earning real yields of 4%, with tenants bearing 20% of shocks. In Korea, a capital market leads tenants to bear all price shocks. Only there is the rental yield perfectly negatively correlated with capital gains, a requirement for the user cost of housing.