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

This paper investigates the term structure of discount rates over the very long run, using the repeat-sales housing transactions and the unique housing contract of leaseholds in England and Wales. We estimate the price discounts and price appreciation discounts for 0-300 years leaseholds maturities relative to very long-run leaseholds and deprive the implied discount rates. We apply hedonic and augmented repeat sales regression for our empirical analysis under various types of restrictions. We find the results support the declining discount rate schedule, implying the benefit of the far future should be discounted at very low rates. In addition, although the declining trend remains consistent, poor and rich region have a different reaction in terms of QE. Before QE, the difference in the average discount rate in the two regions is only 0.2%. It increases to 2.1% during QE, with households in the rich region applying a significantly low average discount rate of 1%, suggesting that monetary policy could affect households’ preference of riskiness, especially households in the rich region.