Based on centuries of data, we demonstrate that demographics have been a major, predictable driver of house prices. High birth rates 25 to 29 (60 to 64) years ago predict declining (rising) rent‐price ratios today. This pattern arises from age‐concentrated entry into and exit from homeownership affecting house prices, rather than changes in housing consumption that could also impact rents. We provide evidence for possible mechanisms: slow responses of other market participants to shifts in homeownership demand, and geographic segmentation between rental and owner‐occupied markets. Evidence for age‐dependent demand effects on yields of bonds and stocks is significantly weaker.

Do investors reach for yield when interest rates are low and does this behavior affect the housing market? Using the unique setting and data of 18th-century Amsterdam, I show that reach-for-yield behavior of wealthy investors resulted in a large boom and bust in house prices and major changes in rental yields. Exploiting changes in the supply of bonds, I show that investors living off capital income shifted their portfolios towards real estate and other higher-yielding assets when bond yields were low and decreasing. This behavior exacerbated house price volatility and increased housing wealth inequality.

We estimate total returns to rental housing by studying over 170,000 hand-collected archival observations of prices and rents for individual houses in Paris (1809–1943) and Amsterdam (1900–1979). The annualized real total return, net of costs and taxes, is 4.0% for Paris and 4.8% for Amsterdam and entirely comes from rental yields. Our returns weakly correlate with the implied returns in Jordà et al. (2019) and are substantially lower. We decompose total return risk at the individual asset level and find that yield risk becomes an increasingly important component of property-level risk for longer investment horizons.