Open AccessThe Time Value of Housing: Historical Evidence on Discount Rates
Author(s) -
Bracke Philippe,
Pinchbeck Edward W.,
Wyatt James
Publication year - 2018
Publication title -
the economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 4.683
H-Index - 160
eISSN - 1468-0297
pISSN - 0013-0133
DOI - 10.1111/ecoj.12501
Subject(s) - leasehold estate , economics , value (mathematics) , exploit , schedule , term (time) , residential property , empirical evidence , econometrics , financial economics , mathematics , statistics , philosophy , physics , economic geography , computer security , management , epistemology , quantum mechanics , political science , computer science , law
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.