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Inflation and the Benefits from Owner-Occupied Housing

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  • Patric H. Hendershott
  • Sheng Cheng Hu

Abstract

This paper examines the effects of inflation on the allocation of resources between residential and nonresidential uses and the productivity of capital in the U.S. We begin by calculating the realized rates of return on homeowner equity and the contributions of fixed-rate mortgages and differences in relative inflation rates to extraordinary earned real returns. The paper then focuses on the implications of the extraordinary real returns on residential capital for stock prices and on the demand for owner-occupied housing. Proposals for achieving efficient allocation of capital between residential and nonresidential uses are also considered.

Suggested Citation

  • Patric H. Hendershott & Sheng Cheng Hu, 1979. "Inflation and the Benefits from Owner-Occupied Housing," NBER Working Papers 0383, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:0383
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    References listed on IDEAS

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    1. Levi, Maurice D & Makin, John H, 1978. "Anticipated Inflation and Interest Rates: Further Interpretation of Findings on the Fisher Equation," American Economic Review, American Economic Association, vol. 68(5), pages 801-812, December.
    2. Thomas J. Sargent, 1973. "Rational Expectations, the Real Rate of Interest, and the Natural Rate of Unemployment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 4(2), pages 429-480.
    3. Fama, Eugene F, 1975. "Short-Term Interest Rates as Predictors of Inflation," American Economic Review, American Economic Association, vol. 65(3), pages 269-282, June.
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    Cited by:

    1. Patric H. Hendershott, 1979. "The Decline in Aggregate Share Values: Inflation, Taxation, Risk and Profitability," NBER Working Papers 0370, National Bureau of Economic Research, Inc.
    2. James M. Poterba, 1980. "Inflation, Income Taxes, and Owner-Occupied Housing," NBER Working Papers 0553, National Bureau of Economic Research, Inc.
    3. Benjamin M. Friedman & Milton Friedman & A. W. Clausen, 1980. "Postwar Changes in the American Financial Markets," NBER Chapters, in: The American Economy in Transition, pages 9-100, National Bureau of Economic Research, Inc.
    4. Feldstein, Martin, 1980. "Tax Rules and the Mismanagment of Monetary Policy," American Economic Review, American Economic Association, vol. 70(2), pages 182-186, May.
    5. Martin Feldstein, 1982. "Inflation, Capital Taxation, and Monetary Policy," NBER Chapters, in: Inflation: Causes and Effects, pages 153-168, National Bureau of Economic Research, Inc.
    6. Martin Feldstein, 1983. "Inflation, Tax Rules, and the Stock Market," NBER Chapters, in: Inflation, Tax Rules, and Capital Formation, pages 199-220, National Bureau of Economic Research, Inc.
    7. Martin Feldstein, 1983. "Should Private Pensions Be Indexed?," NBER Chapters, in: Financial Aspects of the United States Pension System, pages 211-230, National Bureau of Economic Research, Inc.
    8. Robert Forster & Xiaojin Sun, 2024. "Heterogeneous Effects of Mortgage Rates on Housing Returns: Evidence from an Interacted Panel VAR," The Journal of Real Estate Finance and Economics, Springer, vol. 69(3), pages 477-504, October.
    9. Benjamin M. Friedman, 1980. "Postwar Changes in the American Financial Markets," NBER Working Papers 0458, National Bureau of Economic Research, Inc.
    10. Douglas B. Diamond, 1980. "Taxes, Inflation, Speculation and the Cost of Homeownership," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 8(3), pages 281-298, September.

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