The Time Value of Housing: Historical Evidence on Discount Rates

43 Pages Posted: 11 Oct 2016

See all articles by Philippe Bracke

Philippe Bracke

Bank of England - Structural Economic Analysis Division; London School of Economics & Political Science (LSE)

Edward Pinchbeck

London School of Economics & Political Science (LSE) - London School of Economics; Spatial Economics Research Centre (SERC)

James Wyatt

Royal Institution of Chartered Surveyors (RICS)

Date Written: October 07, 2016

Abstract

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.

Keywords: Housing, leasehold, discount rates

JEL Classification: G10, R30

Suggested Citation

Bracke, Philippe and Pinchbeck, Edward and Wyatt, James, The Time Value of Housing: Historical Evidence on Discount Rates (October 07, 2016). Bank of England Working Paper No. 621, Available at SSRN: https://ssrn.com/abstract=2850419 or http://dx.doi.org/10.2139/ssrn.2850419

Philippe Bracke (Contact Author)

Bank of England - Structural Economic Analysis Division ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Edward Pinchbeck

London School of Economics & Political Science (LSE) - London School of Economics ( email )

United Kingdom

Spatial Economics Research Centre (SERC) ( email )

United Kingdom

James Wyatt

Royal Institution of Chartered Surveyors (RICS) ( email )

Rue Ducale - Hertogstraat 67
Brussels, BE - 1000
Belgium

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