Term structure of discount rate: evidence from UK repeat-sales housing
Hang Lai and
Stanimira Milcheva
ERES from European Real Estate Society (ERES)
Abstract:
We infer the term structure of discount rates through the implication of relative price discounts between short leaseholds and very long-term leaseholds in UK repeat-sales housing markets. The price discount reflects the cash flows starting at the short leasehold expiration and is informative about the implied discount rates that households use in their payment valuation. For our empirical analysis, we use repeat-sales regression on properties transacted more than once to deal with the omitted variable and selection bias issues that the hedonic model might have. We find that the term structure of discount rates has a downward-sloping shape over a long horizon with a low implied gross discount rate of 1.3% at 100 years. In addition, we find households living in poor and rich areas or London and Non-London areas apply low but different discount rates from 1.2% to 1.8%, suggesting the consideration of the regional difference in policy design and investment.
Keywords: Asset Pricing; Declining Discount Rates; housing; Repeat Sales Model (search for similar items in EconPapers)
JEL-codes: R3 (search for similar items in EconPapers)
Date: 2023-01-01
New Economics Papers: this item is included in nep-ure
References: Add references at CitEc
Citations:
Downloads: (external link)
https://eres.architexturez.net/doc/oai-eres-id-eres2023-30 (text/html)
https://eres.architexturez.net/system/files/P_20230714185827_4911.pdf (application/pdf)
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:arz:wpaper:eres2023_30
Access Statistics for this paper
More papers in ERES from European Real Estate Society (ERES) Contact information at EDIRC.
Bibliographic data for series maintained by Architexturez Imprints ().