How Do Households Discount Over Centuries? Evidence from Singapore's Private Housing Market

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. We examine Singapore's fairly homogeneous private-housing market and show that new apartments on historical multi-century leases trade at a non-zero discount relative to property owned in perpetuity. Descriptive regressions indicate that new apartments with 825 to 986 years of tenure remaining are priced 4 to 6% below new apartments under perpetual ownership contracts that are otherwise comparable. We consider an empirical model in which asset value is decomposed into the utility of housing services and a second factor that shifts with asset tenure and the discount rate schedule. Exploiting the supply of new property with tenure ranging from multiple decades to multiple centuries, we estimate the discount rate schedule, restricting it to vary smoothly over time through alternative parametric forms. Across different specifications and subsamples, we estimate discount rates that decline over time and, accounting for the observed price differences, are of the order of 0.5% p.a. by year 400-500. The finding that households making sizable transactions do not entirely discount benefits accruing many centuries from today is new to the empirical literature on discounting and, with the appropriate risk adjustment, of relevance to evaluating climate-change investments. Terms of use: Documents in D I S C U S S I O N P A P E R S E R I E JEL Classification:D61, G12, H43, Q51, Q54, R32

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How Do Users Value a Network Expansion? Evidence from the Public Transit System in Singapore

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“…Across a variety of specifications and samples, we find that leasehold prices are consistent with a time declining schedule and low long-term discount rates in housing markets.The shape of discount rate functionsor the term structure of discount ratesprovokes considerable research interest across a number of fields. In this article, we use sales of leasehold dwellings to investigate discount rates in housing markets, complementing a recent literature that exploits features of property tenure to estimate market discount rates over long horizons (Wong et al, 2008;Gautier and van Vuuren, 2014; Giglio et al, 2015a, b;Fesselmeyer et al, 2016). Under a leasehold arrangement, a property is owned only for a fixed term so the intuition for why leasehold prices may contain information on discount rates is straightforward.…”