Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/230762
Authors: 
Wang, Honglin
Yu, Fan
Zhou, Yinggang
Year of Publication: 
2018
Series/Report no.: 
IRTG 1792 Discussion Paper No. 2018-051
Abstract: 
The conventional wisdom that housing prices are the present value of future rents ignores the fact that unlike dividends on stocks, rent is not discretionary. Housing price uncertainty can affect household property investments, which in turn affect rent. By extending the theory of investment under uncertainty, we model the renter's decision to buy a house and the landlord's decision to sell as the exercising of real options of waiting and examine real options effects on rent. Using data from Hong Kong and mainland China, we find a significant effect of housing price on rent and draw important policy implications.
JEL: 
C00
Document Type: 
Working Paper

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