Is real estate a good hedge against inflation?

- "Many institutional investors have increased their (residential and commercial) property portfolios, partly because of the relatively high returns currently offered by real estate, but also because they think that real estate is a hedge against inflation, which could return in the long term. We examine the effectiveness of real estate as a hedge against inflation, and we ask several questions: • is protection provided by real estate prices or by rents?
• do residential and commercial real estate provide the same protection?
• is the situation identical in the case of domestic inflation and imported inflation?"
- "We find that investors should be very cautious, because:
1. residential real estate prices have been correlated to credit and no longer to inflation since the 1990s;
2. residential real estate prices are now correlated to inflation only in the United States and Germany; moreover, they are correlated to employment, and therefore provide no protection against inflation in an inflationary recession (e.g. an oil shock);
3. commercial rents are not at all correlated to inflation;
4. only rents paid by households are universally correlated to inflation;
5. there is no apparent difference between headline inflation and underlying inflation."

Natixis Flash Economics 400 20100819