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Inflation and Real Estate Investment Value

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  • Kenneth M. Lusht

Abstract

It is demonstrated that the inflation rate must be reflected in the anticipated benefit flows used in investment value models. When flows are left unadjusted, a biased value estimate results. It is also shown that the actual effects of the inflation rate on investment value will depend on the relationships of original cost, the debt/equity ratio, and the level of depreciation expense. Inflation has a fundamentally negative impact on value traceable to capital gains and depreciation effects. This can be offset by the use of debt financing.

Suggested Citation

  • Kenneth M. Lusht, 1978. "Inflation and Real Estate Investment Value," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 6(1), pages 37-49, March.
    • Handle: RePEc:bla:reesec:v:6:y:1978:i:1:p:37-49
    DOI: 10.1111/1540-6229.00167
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    Cited by:

    1. Nejadmalayeri, Ali, 2011. "Wages, inflation, and mortgage design," Journal of Economics and Business, Elsevier, vol. 63(5), pages 503-516, September.
    2. Waldo L. Born & Stephen A. Pyhrr, 1994. "Real Estate Valuation: The Effect of Market and Property Cycles," Journal of Real Estate Research, American Real Estate Society, vol. 9(4), pages 455-486.
    3. Stephen A. Pyhrr & Stephen E. Roulac & Waldo L. Born, 1999. "Real Estate Cycles and Their Strategic Implications for Investors and Portfolio Managers in the Global Economy," Journal of Real Estate Research, American Real Estate Society, vol. 18(1), pages 7-68.

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