Why Has House Price Dispersion Gone Up?

2014

This analysis uses intermetropolitan differences in quality of life to estimate the value that residents place on metropolitan amenities and disamenities in land and labor markets. Using individual-level data from the 1980 and 1990 Census of Popu lation and Housing merged with metropolitan-level economic, social, and environ mental factors, it estimates hedonic wage and rent equations to derive the value of amenities and disamenities for 257 metropolitan areas in the United States. Addi tionally, the extent to which capitalization of urban amenities and disamenities changes over time is examined. Results show that the valuation of the urban environ ment changes over time. Amenities appear to play a stronger role in the housing market compared to the labor market. Capitalization appears to adjust in a dynamic process resulting from disequilibrium in the marketplace and/or changes in con sumer preferences. Concern about the impact of growth on quality of life sparks debates across cit...

This paper asks whether worker utility levels – composed of wages, rents and amenities-are being equalized among American cities. Using microdata on U.S. urban workers in 1980 and 2000, little evidence of equalization is found. Comparable workers earn higher real wages in large cities, where amenities are also concentrated. Moreover, population growth between 1980 and 2000 has not been significantly different in low-and high-utility cities, suggesting that other forces are at work shaping the sorting processes that match workers and firms. We outline an alternative view of the drivers of change in the American urban system, and urban development more generally, by applying theory from economic geography.

Journal of Urban Economics, 2009

Recent research has related characteristics of cities to differences in the distribution of wages across workers with different skill levels. We demonstrate that these differences in wage differentials arise naturally as a compensating variation in Rosen's theoretical model of inter-city wages. For example, if the income elasticity of demand for housing services is less than unity, cities with higher house prices will have smaller money wage differentials between low and high skill workers. This result has no implications for differences in either absolute or relative real productivity or welfare of unskilled workers. Similarly, changes in the amenity of an urban area may result in changes in relative wages of skilled and unskilled workers with no implications for real productivity or welfare differentials. Empirical tests in which housing cost differentials are added as a determinant of inter-city differences in an intra-urban wage differential model provide empirical confirmation of the theoretical expectations. It appears that intra-urban money wage differentials, differences in the quality of life, and variation in the cost of living in each city are jointly determined variables just as Rosen's model of inter-city wage differentials predicts.

2000

This analysis uses intermetropolitan differences in quality of life to estimate the value that residents place on metropolitan amenities and disamenities in land and labor markets. Using individual-level data from the 1980 and 1990 Census of Popu­ lation and Housing merged with metropolitan-level economic, social, and environ­ mental factors, it estimates hedonic wage and rent equations to derive the value

Review of Economic Dynamics, 2011

We provide new evidence from the 1980, 1990, and 2000 Decennial Census of Housing that the expenditure share on housing is constant over time and across U.S. metropolitan areas (MSA). Consistent with this observation, we consider a basic model in which identical households with Cobb-Douglas preferences for housing and numeraire consumption choose an MSA in which to live and MSAs differ with respect to income earned by residents. We compute constant-quality wages and rental prices for a sample of 50 U.S. MSAs. Given estimated wages, the calibrated model predicts that rental prices should be more dispersed than observed. That is, the model suggests that rental prices are too low in many high-wage MSAs in the year 2000. * We thank Abstract: We provide new evidence from the 1980, 1990, and 2000 Decennial Census of Housing that the expenditure share on housing is constant over time and across U.S. metropolitan areas (MSA). Consistent with this observation, we consider a basic model in which identical households with Cobb-Douglas preferences for housing and numeraire consumption choose an MSA in which to live and MSAs differ with respect to income earned by residents. We compute constant-quality wages and rental prices for a sample of 50 U.S. MSAs. Given estimated wages, the calibrated model predicts that rental prices should be more dispersed than observed. That is, the model suggests that rental prices are too low in many high-wage MSAs in the year 2000.

2011

Analyses of the determinants of land prices in urban areas typically base inferences on housing transactions which combine payments for land and long-lived improvements. These inferences, in turn, are based upon assumptions about the production function for housing and the appropriate aggregation of non-land inputs. In contrast, we investigate directly the determinants of urban land prices. We assemble more than 7,000 land transactions in the San Francisco Bay Area during the 1990-2009 period, and we analyze the link between the physical access of sites, the topographical and demographic characteristics of their local environment, and the prices of vacant land on those sites. We investigate in detail the link between variations in the quality of public services and the value of developable land. Most importantly, our analysis documents the powerful link between variations in the regulatory environment within a metropolitan area and the prices commanded by raw land as an input to residential or commercial development. Finally, we relate these large variations in land prices to the prices paid by consumers for housing in the region.

SSRN Electronic Journal

Housing affordability has become the main policy challenge for most large cities in the world. Zoning, rent control, housing vouchers, and tax credits are the main levers employed by policy makers. We build a new dynamic stochastic spatial equilibrium model to evaluate the effect of these policies on house prices, rents, residential construction, labor supply, output, income and wealth inequality, as well as the location decision of households within the city. The analysis incorporates risk, wealth effects, and resident landlords. We calibrate the model to the New York MSA, incorporating current zoning and rent control policies. Our model suggests sizable welfare gains from relaxing zoning regulations in the city center, as well as from expanding rent control and housing voucher programs. Housing affordability policies have a substantial insurance value which offsets efficiency losses due to the misallocation of labor and housing. The calibrated model implies gains in social welfare from policies that reduce housing inequality.

Review of Economic Studies, 2007

Workers earn higher wages in cities vs. rural areas. This gap could arise because cities make workers more productive, or it could be the result of a non-random selection of workers into cities based on their ability and their endogenous history of career choices. To untangle these issues, this paper estimates a dynamic programming model, which embeds the choice of residing in a city or rural area within a model of career choices over time. After controlling for all the sources of selection and endogeneity, the estimates indicate that a given worker does earn more in the city for white-collar work, but not for blue-collar work. In addition, city work experience is found to be worth more than rural work experience in the rural area for white-collar work, but not for blue-collar work. These results support the interpretation that cities make white-collar workers more productive and suggest that workers may consider moving to the city not only in terms of locational choice, but also as a form of human capital investment.

2014

The skill intensity ratio (SIR) varies across cities. This variation education has implications for economic research. Black, Kolesnikova, and Taylor (2009) demonstrate that estimated returns to education vary with housing cost. However, if differences in the SIR are caused by variation in housing cost, the same mechanism may cause variation in unobserved worker characteristics that contribute to productivity and higher wages. Theory and tests in this paper demonstrate a substantial effect of housing cost on the SIR implying that unobserved productivity is also associated with housing cost.

Public Finance Review, 2010

It has long been recognized that average wages vary strikingly across regions and urban areas, in part due to differences in local amenities and fiscal policies. However, analogous differences in wage dispersion remain relatively unexplored. We develop a model suggesting that, after accounting for individual characteristics, wage dispersion across income groups should reflect differences in the relative valuation of local amenities and fiscal policies. We empirically investigate whether there is a link between local taxes and expenditures and the degree of dispersion in the wage structure, and find evidence that such a relationship exists.