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Do distant rent flows matter? Inferring discount rates from leasehold apartments in Denmark

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  • Andersen, Carsten

Abstract

I estimate medium and long-run discount rates in the Danish housing market. From leasehold apartment sales I observe transactions of use rights for 34–75 years, a relevant yet understudied horizon for trade-offs of current costs and future benefits. In contrast to related studies of leaseholds I find a discount rate of 5.4% which is more on par with conventional estimates of the real return to capital. Nonparametric estimation of the term schedule suggests a flat pattern.

Suggested Citation

  • Andersen, Carsten, 2022. "Do distant rent flows matter? Inferring discount rates from leasehold apartments in Denmark," Economics Letters, Elsevier, vol. 219(C).
    • Handle: RePEc:eee:ecolet:v:219:y:2022:i:c:s0165176522002919
    DOI: 10.1016/j.econlet.2022.110798
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    References listed on IDEAS

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    1. Maureen L. Cropper & Mark C. Freeman & Ben Groom & William A. Pizer, 2014. "Declining Discount Rates," American Economic Review, American Economic Association, vol. 104(5), pages 538-543, May.
    2. Stefano Giglio & Matteo Maggiori & Krishna Rao & Johannes Stroebel & Andreas Weber & Stijn Van Nieuwerburgh, 2021. "Climate Change and Long-Run Discount Rates: Evidence from Real Estate [Abrupt climate change]," The Review of Financial Studies, Society for Financial Studies, vol. 34(8), pages 3527-3571.
    3. Mark C. Freeman & Ben Groom, 2015. "Positively Gamma Discounting: Combining the Opinions of Experts on the Social Discount Rate," Economic Journal, Royal Economic Society, vol. 125(585), pages 1015-1024, June.
    4. William Nordhaus, 2019. "Climate Change: The Ultimate Challenge for Economics," American Economic Review, American Economic Association, vol. 109(6), pages 1991-2014, June.
    5. Eric Fesselmeyer & Haoming Liu & Alberto Salvo, 2022. "Declining discount rates in Singapore's market for privately developed apartments," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 37(2), pages 330-350, March.
    6. Philippe Bracke & Edward W. Pinchbeck & James Wyatt, 2018. "The Time Value of Housing: Historical Evidence on Discount Rates," Economic Journal, Royal Economic Society, vol. 128(613), pages 1820-1843, August.
    7. William D. Nordhaus, 2007. "A Review of the Stern Review on the Economics of Climate Change," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 686-702, September.
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    More about this item

    Keywords

    Discounting; Social discount rate; Hedonic estimation; Cost–benefit analysis; Climate change; Leaseholds;
    All these keywords.

    JEL classification:

    • D6 - Microeconomics - - Welfare Economics
    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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