Information Capitalization in the Housing Market: Evidence from Land Leases

This paper provides causal evidence on the reaction of housing market participants to information shocks regarding a complex policy scheme affecting the future user cost of housing. We study the capitalization of large future land rent increases into transaction prices of residential units located on leasehold land in Helsinki, Finland. The policy announcement of land rent renewals creates a quasi‐experimental setting, allowing us to investigate the capitalization dynamics over a period of 14 years. The leasehold discount increase is substantially slower than predicted by the present value model, implying only partial adjustment over the short run, but is in line with full capitalization eventually. We further investigate the mechanism behind the sluggish price adjustment.