https://macropaperwarehouse.com/authors/veronica-backer-peral/Verónica Bäcker-PeralHugo -- gohugo.ioen-ushttps://macropaperwarehouse.com/papers/dynamics-of-the-long-term-housing-yield-evidence-from-natural-experiments/https://macropaperwarehouse.com/papers/dynamics-of-the-long-term-housing-yield-evidence-from-natural-experiments/<p>Each month a fraction of UK property leases are extended by 90 years or more, creating thousands of natural experiments in which the same property&rsquo;s rent and capital value are revealed simultaneously. This paper uses these lease extensions — and Massachusetts and Cambridge rent-control removals as a second identification strategy — to estimate the expected long-term housing yield (annual rent-to-price ratio) and decompose its dynamics into rent-growth expectations and discount-rate components. The central finding is that housing yield movements are dominated by discount-rate shocks: variation in required returns on housing explains the overwhelming majority of yield variance, while expected rent growth contributes less than 10 percent. Housing booms are therefore primarily driven by falling required returns, not by rational expectations of higher future rents. The yield responds to real long-term interest rates with a slope significantly below one, consistent with a non-pecuniary convenience yield on housing that is not fully displaced by interest rate changes.</p>