University of Bonn: more profitable residential property in smaller towns; Researchers from the ECONtribute cluster of excellence at the University of Bonn analyzed historical data on real estate returns


Residential real estate in large cities is considered particularly profitable.

However, yields over the past 150 years have been lower on average than properties in small towns. This is shown by a study by the team of economist Prof. dr. Moritz Schularickmember of the ECONtribute Center of Excellence: Markets & Public policy to University of Bonn. The study is the first of its kind to provide historical comparisons of long-term total returns for residential portfolios, linking data on house prices and rental yields. It was published in advance as the “ECONtribute Discussion Paper”.

The researchers assessed data on house prices and rents from 27 selected major cities in 15 countries. In the first step, the team calculated the average total return of urban residential properties over the past 150 years, which includes house price growth and rental income. In addition to existing databases, the researchers used municipal directories, newspaper advertisements, tax and notarial records as a reference base. Economists then compared yields in major cities with average yields in the rest of the country. In addition to international metropolises such as London, new York and Tokyothe team also looked at German cities such as Berlin, Frankfurt and Hamburg.

The result: residential real estate in the major cities studied has generated on average about 1% less total return per year over the past 150 years than the rest of the country. This effect is also evident when looking at shorter time periods, such as the last 70 or 30 years. “If you had invested in a national portfolio of residential real estate in 1950, it would be worth twice as much today as an equivalent portfolio in a major city,” says Moritz Schularickprofessor of economics at ECONtribute at the University of Bonn – given that we had always reinvested the rental income.

Rental income is crucial for high property returns

The study concludes that the key driver of high returns is rental income, which has remained relatively constant. “House prices have sometimes gone up more, but they have also fluctuated more,” says Schularick. Overall, rental income has accounted for nearly 70% of total residential real estate returns over the past 150 years. In relation to the purchase price, rents are on average higher outside urban areas.

Risk premium on rural residential real estate

The researchers also explain the fact that residential real estate outside major cities yields higher long-term returns with the increased risk that investors in smaller cities take. Real estate in larger cities is more liquid, which means it has a greater likelihood of being sold at some point. Meanwhile, in smaller towns, it can be more difficult to sell a property quickly.

The study dispels the prejudice that real estate investment is more attractive in large cities. “Even big investors are turning to investing in rental properties in small towns,” said Leibniz Prize winner Schularick.

About ECONtribute: Markets and Public policy

ECONtribute is the only center of excellence in economics financed by the German Research Foundation (DFG), supported by the universities of Bonn and Cologne. The cluster conducts market research at the intersections of economics, politics and society. Its aim is to apply a new approach to understanding markets and market failures in times of social, technological and economic challenges, such as increasing inequality, global financial crises and digitalisation.


Francois Amaral, Martin Dohmen, Sebastien Kohl & Moritz Schularick: The return of the superstars. ECONtribute Working Paper:



Teacher. dr. Moritz Schularick

ECONtribute, University of Bonn

phone +49 228 73-7976

[email protected]

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Caroline Jackermeier

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phone +49 221 470 7258

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