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The time value of housing: historical evidence on discount rates

Philippe Bracke, Edward Pinchbeck and James Wyatt

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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.

Keywords: housing; leasehold; discount rates; ES/M010341/1; ES/J021342/1 (search for similar items in EconPapers)
JEL-codes: G10 R30 (search for similar items in EconPapers)
Date: 2017-08-16
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Published in The Economic Journal, 16, August, 2017, 128(613), pp. 1820-1843. ISSN: 0013-0133

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http://eprints.lse.ac.uk/86393/ Open access version. (application/pdf)

Related works:
Journal Article: The Time Value of Housing: Historical Evidence on Discount Rates (2018) Downloads
Working Paper: The time value of housing: historical evidence on discount rates (2016) Downloads
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