Leasehold Status and Apartment Prices: Exploring Price Efficiency and Optimal-Choices among Housing Cooperatives

This paper examines how leasehold status affects cooperative apartment prices in Stockholm, and if housing cooperatives acted rationally when offered to purchase their leasehold land. The analysis builds on over 20,000 sales of apartments in 2021 and extends prior research in two key ways. First, while earlier studies have established that leasehold tenure is associated with a price discount, we show that the effect varies substantially within a city. Leasehold apartments in central Stockholm sell at an average discount of 3.6%, compared to 6.8% in suburban areas, with neighborhood-level effects ranging from negligible to more than 15%. This heterogeneity underscores the importance of local market conditions for understanding how leasehold status is capitalized. A potential explanation for the identified pattern is that leasehold status is more common in the city center compared to suburban areas, resulting in a smaller discount when substitutes in the form of freehold apartments are less common. Second, we move beyond buyer capitalization by estimating counterfactual apartment values under scenarios where cooperatives purchase their land. The results indicate that, at prevailing interest rates, land purchases were typically unprofitable for cooperatives, even at discounted terms offered by the City of Stockholm in 2022. The findings highlight that the ownership structure of cooperative apartments on leasehold land can result in substantial pricing issues. The results indicate that the City of Stockholm likely mispriced the land given how leasehold status is capitalized by apartment buyers.