The Time Value of Housing: Historical Evidence on Discount Rates | Zendy

Bracke Philippe | Zendy; Pinchbeck Edward W. | Zendy; Wyatt James | Zendy

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The 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 , exploit , economics , value (mathematics) , schedule , term (time) , residential property , econometrics , financial economics , microeconomics , mathematics , statistics , computer science , physics , economic geography , computer security , management , quantum mechanics , political 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.

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