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Inflation and Housing Prices


  • Lewis J. Spellman


Home ownership is a claim on the stream of net rents. Like any income-producing asset, the market capitalizes its value. The price-rent multiple depends upon the expected growth rate of revenues and expenses, on financing terms, and on taxes. This paper derives this price-rent multiple in terms of these variables and calculates its value from 1963 through 1978.The results indicate that housing prices grew more rapidly than rents and the CPI largely as the result of a 33% increase in the price-rent multiple over those years. This increase in the capitalization rate occurred, despite higher nominal financing terms, because the relative terms of housing finance tended to ease and because the expected growth rate of rents increased more than its discount rate. Copyright American Real Estate and Urban Economics Association.

Suggested Citation

  • Lewis J. Spellman, 1981. "Inflation and Housing Prices," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 9(3), pages 205-222.
  • Handle: RePEc:bla:reesec:v:9:y:1981:i:3:p:205-222

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    References listed on IDEAS

    1. William Poole, 1972. "Financial adjustment to inflation," Special Studies Papers 25, Board of Governors of the Federal Reserve System (U.S.).
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    Cited by:

    1. Roula Inglesi-Lotz & Rangan Gupta, 2011. "Relationship between House Prices and Inflation in South Africa: An ARDL Approach," Working Papers 201130, University of Pretoria, Department of Economics.

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