Long-run Discount Rates: Evidence from UK Repeat Sales Housing
25 Pages Posted: 14 Dec 2021 Last revised: 22 Jun 2022
Date Written: May 14, 2022
We estimate the term structure of discount rates in UK housing markets through the implication of relative price discounts between short leaseholds and very long-term leaseholds. The price discount reflects the cash flows starting at the short leaseholds expiration and is informative about the discount rates. For our empirical analysis, we use repeat-sales regression on properties transacted more than once as an alternative method of hedonic regression to deal with the omitted variable and selection bias issues. We find that the term structure of discount rates has a downward sloping shape over long horizons and households living in poor and rich areas of London and Non-London areas apply very low but different discount rates.
Keywords: Declining Discount Rates, Hedonic Model, Repeat Sales Model, Housing, Asset Pricing.
JEL Classification: G11, H31, R30
Suggested Citation: Suggested Citation