Philippe Bracke

How Much Do Investors Pay for Houses

In 2013 buy-to-rent investors — referred to as buy-to-let (BTL) in the United Kingdom — accounted for 13% of all UK mortgage-funded housing transactions and for an even greater fraction of non-mortgage sales. This paper studies the behaviour of BTL investors using 2009-14 micro data. Combining the universe of transactions from the England and Wales Land Registry with online listings from WhenFresh/Zoopla, I identify a BTL purchase as a transaction where a rental listing on the same property appears on the web in the six subsequent months. The micro data reproduce the increase in BTL transactions over 2009-14 and show that BTL investors are more likely to invest in regions with large rental markets. I find that, on average, BTL investors pay 0.9%-1.1% less than other buyers for equivalent properties. Discounts are larger (around 2%) in regions with less liquid housing markets. Results are robust to including detailed geographical fixed effect and advertised sale prices in the regressions. I also show that properties purchased by investors spend on average five days less on the market.

The Time Value of Housing: Historical Evidence on Discount Rates

Most London housing transactions involve trading long leases of varying lengths. We exploit this to estimate the time value of housing — the relationship between the price of a property and the term of ownership — over a hundred years and derive implied discount rates. For our empirical analysis, we compile a unique historical data set (1987 to 1992) to abstract from the right to extend leases currently enjoyed by tenants. 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.

History dependence in the housing market

Using the universe of housing transactions in England and Wales in the last twenty years, we document a robust pattern of history dependence in housing markets. Sale prices and selling probabilities today are affected by aggregate house prices prevailing in the period in which properties were previously bought. We investigate the causes of history dependence, with its quantitative implications for the post-crisis recovery of the housing market. To do so we complement our analysis with administrative data on mortgages and online house listings, which we match to actual sales. We find that high leverage in the pre-crisis period and anchoring (or reference dependence) both contributed to the collapse and slow recovery of the volume of housing transactions. We find no asymmetric effects of anchoring to previous prices on current transactions; in other words, loss aversion does not appear to play a role over and above simple anchoring.