The price of access to jobs: Bid-function envelopes for commuting costs✰

Abstract

The relationship between commuting costs and housing prices is a key determinant of urban residential structure. This paper provides the first estimates of both housing/commuting bid functions of heterogeneous households and the associated bid-function envelope. This approach clarifies the distinction between movement along a household's bid function and a change in the slope of the envelope caused by household sorting. It also leads to tests of the hypotheses that households sort according to the slopes of their bid functions and that higher-income households tend to live farther from worksites. Estimates based on house sales in the Cleveland area in 2000 largely support these two hypotheses and indicate that the price of housing may be as much as one-third lower at a location that is 34 minutes from a worksite than it is at a location that requires a minimal commute, all else equal.