Conference Agenda

We quantify racial differences in the total rate of return on owner-occupied housing from 1975-2021. The total rate of return of buying a house equals the price appreciation plus the rental value of its housing services, minus taxes and maintenance. To measure the total return, we develop a new method to estimate the rental value of each owner-occupied house. We use houses that switch between the rental and owner-occupied market to estimate the relationship between purchase prices and rents. We then use this regression to predict the rental value of the entire owner-occupied housing stock and find this prediction out-performs standard hedonic techniques. We document both in raw data and with our new method that minority homeowners earn a 1.5-2 percentage point higher rental yield on housing than

white homeowners, which largely explains their 2-2.5 percentage point higher total return. Black and Hispanic homeowners’ total returns are also more volatile and sensitive to the business cycle. Observable differences in household income largely account for these racial return disparities. Our findings are broadly consistent with a model with a more severe credit constraint for minorities, which bids up rents, lowers house prices, and makes house prices sensitive to credit supply.