Why are women earning lower returns from their real estate investments than men?

Sep. 05, 2023

The gender real estate returns gap can be attributed to lower participation in the professional real estate market and fewer renovations among women, a new study shows. Once these differences are accounted for, the gender gap disappears.

 

Like other economic gender disparities such as income and representation in top jobs, the gender gap in real estate returns is sometimes attributed to the perceived differences in assertiveness and negotiation skills between men and women.

In a recent study conducted by Anastasia Girshina and Paolo Sodini from Swedish House of Finance, and Laurent Bach from ESSEC Business School, the researchers examined the gender disparity in real estate returns using apartment sales data in Sweden. They discovered that this gap can be attributed to women engaging in fewer renovations, having lower involvement in the professional real estate market, and possessing less construction-related experience. Notably, once these distinctions are considered, the gender gap vanishes.

Their findings challenge the notion that women get lower returns due to being less assertive in housing bargaining, as their lower listing prices are compensated by higher final sale prices.

Men earn higher returns compared to women and couples...

The study shows that throughout the sample period, men consistently achieved higher returns compared to women and couples. Although yearly returns vary, ranging from around 11% to over 20% for men, the gender gap remains relatively stable. On average, men earn approximately 15% more than women and 25% more than couples annually between 2007 and 2016.

... and also renovate more

Men appear to renovate substantially more than both women and couples, the study found.

Over the sample period, men's annualized renovartions are approximately 40% higher than others, suggesting that the gender gap, as previously estimated in research that did not consider renovations, is overestimated. 

The contrast in returns between men and women becomes more evident when properties are sold relatively quickly. The study revealed that as the holding period decreases, the influence of renovation adjustments on returns becomes more pronounced. Considering that men typically engage in transactions with shorter holding periods, the gender gap in real estate returns becomes even more substantial.

To investigate the factors influencing gender differences in renovations within non-professionals in the real estate market, researchers looked into detailed information on sellers from registry data. They examined various potential explanations for the gender gap, including income, financial literacy, construction work knowledge, family background, high school grades, and even IQ levels.

Women who sell their homes tend to earn lower incomes and may face greater financial constraints when it comes to making home improvements. Additionally, they often purchase houses that are in better condition and, consequently, come with higher price tags. However, even after considering these factors, along with various other potential explanations, the renovation gap only decreases by 10%.

When comparing renovation intensity between siblings within the same family however, the study discovered that the difference in renovation intensity between brothers and sisters was insignificant, suggesting that the decision to renovate is influenced more by family-specific, rather than gender-specific factors.

There are fewer women professionals in real estate

Real estate professionals represent a very small share of the real estate market in terms of holdings but dominate when it comes to overall transactions; the study found that there are significantly more men than women who work as real estate professionals.

In the professional real estate market segment, single males conducted over half of all transactions, while women accounted for only 18%. In contrast, the gender gap in non-professional real estate transactions were insignificant. The study also showed that female real estate professionals perform on par with their male counterparts.

Professionals in the real estate market achieve returns nearly double those of non-professionals, the study showed. They also reported significantly higher renovation expenditures, which are almost three times higher and exhibit faster turn-around times by almost a year, with an average of 3.7 years compared to 4.5 years for non-professionals.

Short-term professional transactions are largely responsible for real estate returns on the overall market, and the stark gender disparity in the real estate profession will only contribute to exacerbate the existing gap in real estate returns, the authors say.

Retirement status

Unlike the case with real estate market professionals, the retired are over-represented by women: 46% of retired are females compared to only 25% of males.

This is significant as retirees earn lower returns, renovate less, and hold apartments longer on average. This may further fuel the observed gender gap in real estate, the authors say, especially when women constitute a large part of the socio-demographic group that fair relatively worse on the real estate market.

The role of location and market timing

The study also looked at specific transaction characteristics and found that the share of transactions done by men and women changed depending on how profitable the market timing was. Men tended to do more transactions when the market timing was particularly good. These top transactions were often carried out by professionals, involved significant renovations, and had shorter holding periods.

Negotiation skills between the genders

The researchers also explored if differences in negotiation strategies might explain the gender gap in real estate returns. Women tended to sell at slightly lower prices and pay higher premiums when purchasing compared to men, suggesting they might be less aggressive negotiators.

However, after factoring in renovations, this gap disappears. Women, as sellers, recoup their initial lower starting point in negotiations by receiving a significantly higher premium between the final sale price and the listing price.

Although women initially listed their properties at lower prices, the study found that the market compensated by offering a higher premium in the final transaction. Based on this evidence, the researchers conclude that women do not receive lower returns despite being perceived as "soft negotiators”.