It's for the same reason that PE returns are less volatile. The assets are illiquid and don't get repriced often. They're sold when it's convenient for the seller, which tends to be when they can make money, so the returns appear more less volatile then they actually are.
The document mentions that the majority of returns through housing are through rents collected (6%), not capital appreciation (1%). So, not sure about your point.
It's for the same reason that PE returns are less volatile. The assets are illiquid and don't get repriced often. They're sold when it's convenient for the seller, which tends to be when they can make money, so the returns appear more less volatile then they actually are.