Inflation and Real Estate Investment Value

Kenneth M. Lusht

Real Estate Economics, 1978, vol. 6, issue 1, 37-49

Abstract: It is demonstrated that the inflation rate must be reflected in the anticipated benefit flows used in investment value models. When flows are left unadjusted, a biased value estimate results. It is also shown that the actual effects of the inflation rate on investment value will depend on the relationships of original cost, the debt/equity ratio, and the level of depreciation expense. Inflation has a fundamentally negative impact on value traceable to capital gains and depreciation effects. This can be offset by the use of debt financing.

Date: 1978
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