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Inflation and Housing Prices *
Author(s) -
Spellman Lewis J.
Publication year - 1981
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/1540-6229.00240
Subject(s) - economics , economic rent , capitalization , inflation (cosmology) , value (mathematics) , asset (computer security) , monetary economics , present value , relative price , revenue , capitalization rate , microeconomics , financial economics , finance , real estate , linguistics , philosophy , physics , real estate investment trust , computer security , machine learning , theoretical physics , computer science
Home ownership is a claim on the stream of net rents. Like any income‐producing asset, the market capitalizes its value. The price‐rent multiple depends upon the expected growth rate of revenues and expenses, on financing terms, and on taxes. This paper derives this price‐rent multiple in terms of these variables and calculates its value from 1963 through 1978. The results indicate that housing prices grew more rapidly than rents and the CPI largely as the result of a 33% increase in the price‐rent multiple over those years. This increase in the capitalization rate occurred, despite higher nominal financing terms, because the relative terms of housing finance tended to ease and because the expected growth rate of rents increased more than its discount rate.