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SERC/Urban and Spatial Programme Discussion Paper
The Time Value of Housing: Historical Evidence from London Residential Leases
Philippe Bracke, Edward W. Pinchbeck and James Wyatt December 2014
Paper No' SERCDP0168:
Full Paper (pdf)

JEL Classification: G12; R30

Tags: house prices; discount rates; historical data

Most housing transactions in London involve trading long leases of varying lengths. We exploit this feature to estimate the time value of housing --- the relationship between the value of a property and the length of time it will be owned for --- over the range 1-99 years. To do so, we compile a unique historical dataset from 1987 to 1992 to abstract from current institutional features of the UK system, for instance rights to extend leases that could confound our results. By applying hedonic techniques to these data we provide new evidence on how the market values leasehold properties. We find that the time value of housing over the range 1-99 is similar to an exponential shape, a finding that suggests sophisticated pricing behaviour in the London residential market. Digging deeper, however, we show that leasehold prices depart from this predictable pattern in a way that is consistent with a declining discount rate schedule.

This paper has been published as:
'The Time Value of Housing: Historical Evidence on Discount Rates', Philippe Bracke, Ted Pinchbeck and James Wyatt, The Economic Journal, 21 March 2017