Home advantage: The preference for local residential real estate investment

Do residential real estate investors hold locally-concentrated or geographically-diversified portfolios? We identify a large sample of investors in the residential property market and measure the proximity of their investment properties to their owner-occupied address to study this question. We hypothesize that there is a preference among residential real estate investors to buy locally and find strong empirical support for this. This preference is in line with the results of ‘home bias’ research in other investment markets, yet contrasts with the documented benefits of geographic diversification in real estate markets. Our results indicate that the home bias may be partly mitigated by investor sophistication and is not driven by the relative purchasing power across geographic areas.