Inflation and the Benefits from Owner-Occupied Housing

Patric Hendershott and Sheng Cheng Hu

No 383, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper examines the effects of inflation on the allocation of resources between residential and nonresidential uses and the productivity of capital in the U.S. We begin by calculating the realized rates of return on homeowner equity and the contributions of fixed-rate mortgages and differences in relative inflation rates to extraordinary earned real returns. The paper then focuses on the implications of the extraordinary real returns on residential capital for stock prices and on the demand for owner-occupied housing. Proposals for achieving efficient allocation of capital between residential and nonresidential uses are also considered.

Date: 1979-08
Note: PE
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Published as Hendershott, Patric H. and Hu, Sheng Cheng. "Inflation and Extraordinary Returns on Owner-Occupied Housing: Some Implications for Capital Allocation and Productivity Growth." Journal of Macroeconomics, Vol. 3, No. 2, (Spring 1981), pp. 177-203.

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