Do distant rent flows matter? Inferring discount rates from leasehold apartments in Denmark

Abstract

I estimate medium and long-run discount rates in the Danish housing market. From leasehold apartment sales I observe transactions of use rights for 34–75 years, a relevant yet understudied horizon for trade-offs of current costs and future benefits. In contrast to related studies of leaseholds I find a discount rate of 5.4% which is more on par with conventional estimates of the real return to capital. Nonparametric estimation of the term schedule suggests a flat pattern. • Discount rates are paramount in deciding optimal policy responses to climate change. • Long term discount rates can potentially be inferred from leasehold transactions. • The slope and level of the term structure varies with the empirical setting. • Danish leasehold sales suggest discount rates on par with the return to capital.