The time value of housing: Historical evidence on discount rates

Philippe Bracke*, Ted Pinchbeck, James Wyatt

*Corresponding author for this work

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Abstract

Most London housing transactions involve trading long leases of varying lengths. We exploit this to estimate the time value of housing – the relationship between the price of a property and the term of ownership – over a 100 years and derive implied discount rates. For our empirical analysis, we compile a unique historical data set (1987–92) to abstract from the right to extend leases currently enjoyed by tenants. Across a variety of specifications and samples, we find that leasehold prices are consistent with a time declining schedule and low long-term discount rates in housing markets.
Original languageEnglish
Pages (from-to)1820-1843
Number of pages24
JournalEconomic Journal
Volume128
Issue number613
Early online date21 Mar 2017
DOIs
Publication statusPublished - Aug 2018

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