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The Time Value of Housing: Historical Evidence on Discount Rates

Bracke, P., Pinchbeck, E. & Wyatt, J. (2018). The Time Value of Housing: Historical Evidence on Discount Rates. The Economic Journal, 128(613), pp. 1820-1843. doi: 10.1111/ecoj.12501

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.

Publication Type: Article
Subjects: H Social Sciences > HB Economic Theory
Departments: School of Policy & Global Affairs > Economics
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