Sunk Costs and the Measurement of Commercial Property Depreciation

23 Pages Posted: 10 Jun 2014

See all articles by W. Erwin Diewert

W. Erwin Diewert

University of British Columbia (UBC) - Department of Economics; National Bureau of Economic Research (NBER)

Kevin J. Fox

UNSW Australia Business School, School of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: June 1, 2014

Abstract

This paper develops a new framework for measuring prices and quantities of commercial properties. In particular, it addresses problems associated with obtaining separate estimates for the land and structure components of a property. A key contribution is to address the problem of estimating structure depreciation taking into account the fixity of the structure. We find that structure depreciation is determined primarily by the cash flows that the property generates rather than physical deterioration of the building.

Keywords: Property price indexes, net operating income, discounted cash flow, System of National Accounts, Balance Sheets, land and structure prices, goodwill amortization, intangible assets

JEL Classification: C2, C23, C43, D12, E31, R21

Suggested Citation

Diewert, W. Erwin and Fox, Kevin J., Sunk Costs and the Measurement of Commercial Property Depreciation (June 1, 2014). UNSW Australian School of Business Research Paper No. 2014-28. Available at SSRN: https://ssrn.com/abstract=2445119 or http://dx.doi.org/10.2139/ssrn.2445119

W. Erwin Diewert

University of British Columbia (UBC) - Department of Economics ( email )

997-1873 East Mall
Vancouver, BC V6T 1Z1
Canada
604-822-2544 (Phone)
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National Bureau of Economic Research (NBER)

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United States

Kevin J. Fox (Contact Author)

UNSW Australia Business School, School of Economics ( email )

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Australia
(02)9385-3320 (Phone)
(02)9313-6337 (Fax)

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