The time value of housing: historical evidence on discount rates

Working papers set out research in progress by our staff, with the aim of encouraging comments and debate.
Published on 07 October 2016

Working Paper No. 621
By Philippe Bracke, Edward W Pinchbeck and James Wyatt 

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 hundred years and derive implied discount rates. For our empirical analysis, we compile a unique historical data set (1987 to 1992) 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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