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The time value of housing: historical evidence from London residential leases

Bracke, Philippe and Pinchbeck, Ted and Wyatt, James (2014) The time value of housing: historical evidence from London residential leases. SERC discussion papers, SERCDP0168. Spatial Economics Research Centre, London, UK.

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Abstract

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

Item Type: Monograph (Discussion Paper)
Official URL: http://www.spatialeconomics.ac.uk/
Additional Information: © 2014 The Authors
Divisions: Spatial Economics Research Centre
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HG Finance
JEL classification: G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates
R - Urban, Rural, and Regional Economics > R3 - Production Analysis and Firm Location > R30 - General
Sets: Research centres and groups > Spatial Economics Research Centre
Collections > Economists Online
Date Deposited: 25 Nov 2015 10:24
Last Modified: 25 Nov 2015 10:24
Funders: Economic and Social Research Council, Department for Business, Innovation & Skills, Welsh Government
URI: http://eprints.lse.ac.uk/id/eprint/64504

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