What is ‘Implicit Rental Rate’
The opportunity costs that a firm incurs as a result of using their own assets for ongoing operations instead of other alternative uses. The implicit rental rate can be either greater than or less than the firm’s cost of capital.
Explaining ‘Implicit Rental Rate’
In the event that the implicit rental rate is lower than the firm’s cost of capital, then the firm is not likely to be in business for very long. This is because the firm’s cost to operate its assets, as measured by its cost of capital, is greater than the firm’s best alternative use for those assets.
Further Reading
- The Housing Rental Rate Elasticity of Aggregate Consumption: A Panel Study for OECD Countries – www.tandfonline.com [PDF]
- Are home prices the next bubble? – papers.ssrn.com [PDF]
- Rental housing market segmentation in Germany according to ownership – www.tandfonline.com [PDF]
- Net investment in farm tractors: an econometric analysis – academic.oup.com [PDF]
- House prices and inflation – onlinelibrary.wiley.com [PDF]
- Returns to Single-Family Owner-Occupied Housing – www.aresjournals.org [PDF]