Long-run Discount Rates: Evidence from UK Repeat Sales Housing

25 Pages Posted: 14 Dec 2021 Last revised: 22 Jun 2022

See all articles by Hang Lai

Hang Lai

University College London

Stanimira Milcheva

University College London

Date Written: May 14, 2022

Abstract

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

Lai, Hang and Milcheva, Stanimira, Long-run Discount Rates: Evidence from UK Repeat Sales Housing (May 14, 2022). Available at SSRN: https://ssrn.com/abstract=3980392 or http://dx.doi.org/10.2139/ssrn.3980392

Hang Lai (Contact Author)

University College London ( email )

Gower Street
London, WC1E 6BT
United Kingdom

Stanimira Milcheva

University College London ( email )

1-19 Torrington Place
Bartlett School of Sustainable Construction
London, London WC1E 7HB
United Kingdom

HOME PAGE: http://www.stanimilcheva.com

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