Houses and Apartments: Similar Assets, Different Financials

The demand for investment for any asset including houses and apartments depends on a relative yield-price ratio. In an equilibrium structure, the yield-price ratio is shown to depend explicitly on interest rates, capital gains and the loan-to-value ratio. For U.S. quarterly data from 1986 to 2010 starts on houses are highly sensitive to interest rates and capital gains, while those for apartments are not. Apartments are sensitive to equity availability. While similar assets, houses and apartments respond differently to each of these financial variables.