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Uses of Equilibrium Models in Real Estate Research

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Patric H. Hendershott
Abstract

Equilibrium analysis is a valuable tool in real estate investment research. In this survey, I show how equilibrium models have been used to estimate the required risk premium for different classes of real estate, to explain housing prices and rents, and to determine investment rental market adjustment and valuation (as well as to predict future rent, price and value developments). Equilibrium analysis, combined with option theory, has also increased our understanding of differences in coupon/rental rates on loans/leases with different contract provisions (or our understanding of differences in values of contracts with different provisions but the same coupon/rental rates). Because the work on leases has lagged that on loans or mortgages, application of the mortgage research methodology to leases is an especially fertile area for research

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Paper provided by Ohio State University in its series Research in Financial Economics with number 9612.

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Handle: RePEc:wop:ohsrfe:9612

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  1. Brennan, Michael J. & Schwartz, Eduardo S., 1977. "Savings bonds, retractable bonds and callable bonds," Journal of Financial Economics, Elsevier, vol. 5(1), pages 67-88, August. [Downloadable!] (restricted)
  2. McConnell, John J. & Schallheim, James S., 1983. "Valuation of asset leasing contracts," Journal of Financial Economics, Elsevier, vol. 12(2), pages 237-261, August. [Downloadable!] (restricted)
  3. Dunn, Kenneth B & McConnell, John J, 1981. "Valuation of GNMA Mortgage-Backed Securities," Journal of Finance, American Finance Association, vol. 36(3), pages 599-616, June. [Downloadable!] (restricted)
  4. Capozza, Dennis R. & Helsley, Robert W., 1990. "The stochastic city," Journal of Urban Economics, Elsevier, vol. 28(2), pages 187-203, September. [Downloadable!] (restricted)
  5. K.C. Chan & Patric H. Hendershott & Anthony B. Sanders, 1991. "Risk and Return on Real Estate: Evidence from Equity REITs," NBER Working Papers 3311, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Capozza, Dennis R & Sick, Gordon A, 1991. "Valuing Long-Term Leases: The Option to Redevelop," The Journal of Real Estate Finance and Economics, Springer, vol. 4(2), pages 209-23, June.
  7. Meltzer, Allan H, 1974. "Credit Availability and Economic Decisions: Some Evidence from the Mortgage and Housing Markets," Journal of Finance, American Finance Association, vol. 29(3), pages 763-77, June. [Downloadable!] (restricted)
  8. Rosen, Kenneth T & Smith, Lawrence B, 1983. "The Price-Adjustment Process for Rental Housing and the Natural Vacancy Rate," American Economic Review, American Economic Association, vol. 73(4), pages 779-86, September. [Downloadable!] (restricted)
  9. Jesse M. Abraham & Patric H. Hendershott, 1994. "Bubbles in Metropolitan Housing Markets," NBER Working Papers 4774, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. Capozza, Dennis R. & Seguin, Paul J., 1996. "Expectations, efficiency, and euphoria in the housing market," Regional Science and Urban Economics, Elsevier, vol. 26(3-4), pages 369-386, June. [Downloadable!] (restricted)
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