N°23-08: The Role of Multi-Family Properties in Hedging Pension Liability Risk: Long-Run Evidence

Pension funds aim to hold assets that match their future liabilities. For this purpose, there is a growing interest in multi-family properties as their returns should be positively related to wage growth and hence pension liabilities. Using data for Sweden over 145 years, we investigate the role that multi-family properties play in the context of a mixed-asset portfolio that aims to track wage growth. The benefits from holding multi-family properties are the greatest for low-risk allocation approaches. For more risky strategies, the role of real estate is also positive but more muted, and it varies greatly over time. Holding real estate was most beneficial during the first two decades of the 21st century. Multi-family properties are found to be the only asset class to be positively related to wage growth. We show that the net operating income acts as the transmission channel between wages and property returns.