The Role of Housing in a Mixed-Asset Portfolio: The Particular Case of Direct Housing within the Greater Paris Region

Résumé 0

Given the importance of the residential property sector, we propose to study direct housing as an asset class within the optimal multi-asset portfolio. In this study, we consider the performances of direct housing within the metropolis Grand Paris between 1996 and 2017. We test the inflation hedging property of direct housing as well as its diversification benefits. We also define the optimal weight of this particular asset class when held together with stocks and bonds. Our finds bring several contributions to the French residential market within a portfolio management context. First, directly-held housing investment should bring diversification benefits to the mixed-asset portfolio. Second, residential asset is confirmed to be a hedge against inflation and particularly against its unexpected component. Third, using hierarchical clustering technique, we divided the "Grand Paris" into five homogenous groups of communes and give the optimal weight of each of the 150 communes and each group of communes into the tangency portfolio. Weights stability through time is checked through moving windows. We also compare our finding when considering listed real estate with direct housings.