The Economic Consequences of Insecure Property Rights

Secure property rights are essential for efficient resource allocation and investment, yet their economic effects in affluent urban settings remain understudied. This paper examines a natural experiment in Jerusalem, where 99-year leases on church-owned land in some of the city’s most expensive neighborhoods are approaching expiration. The looming lease terminations create substantial legal ambiguity: while some contracts allow for potential extension, the terms are vague, and recent government statements suggest possible intervention via eminent domain or regulatory imposition on private investors who recently acquired the land. Using a comprehensive dataset of all real estate transactions in Jerusalem from 2004 to 2024, we compare the price and transac-
tion likelihood of properties with secure and insecure property rights within the same neighborhood blocks, controlling for location and time effects. We find that insecure property rights reduce transaction likelihood by about 20 percent and depress transaction prices by 10 to 15 percent on average, with larger effects as lease expiration
draws nearer. We then use a simple present-value framework to interpret these price discounts and estimate that market participants assign a substantial but far from certain probability to the loss of rights at lease expiration. The results show that insecure property rights can impose large economic costs even in wealthy, developed housing markets.

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