House Price Capitalization Research Articles

The effect of open space maintenance spending on house prices

AbstractWe study the effect on housing values of cutting funding for the maintenance of local parks and recreational areas. It is the first study we find on house prices and park maintenance spending, and only the second open space study we find that uses regression discontinuity. We study tax votes with exogenous timing for renewing current expense spending on parks and recreation, adding to the vibrant literature on house price capitalization of environmental amenities. We find that otherwise similar communities that barely vote to cut taxes suffer an 11% drop in house prices, compared to communities that barely vote to renew tax funding. The capitalization discount grows to 13% and 16% in later periods. Voting against spending saves $70 a year for a typical house but cuts house values by over $30,000. We find stronger effects for large tax levies and more expensive houses.

House Price Capitalization of Stormwater Retention Basins: Evidence from Fresno-Clovis Metropolitan Area in California

House Price Capitalization of Stormwater Retention Basins: Evidence from Fresno-Clovis Metropolitan Area in California

Behavioral Responses to Wealth Taxes: Evidence from Switzerland

We study how reported wealth responds to changes in wealth tax rates. Exploiting rich intra-national variation in Switzerland, the country with the highest revenue share of annual wealth taxation in the OECD, we find that a 1 percentage point drop in the wealth tax rate raises reported wealth by at least 43% after 6 years. Administrative tax records of two cantons with quasi-randomly assigned differential tax reforms suggest that 24% of the effect arise from taxpayer mobility and 20% from house price capitalization. Savings responses appear unable to explain more than a small fraction of the remainder, suggesting sizable evasion responses in this setting with no third-party reporting of financial wealth.

Do Stormwater Basins Generate co-Benefits? Evidence from Baltimore County, Maryland

An often-cited advantage of green infrastructure projects is the potential for “co-benefits” generated from its natural features, which depend on the generation of positive house price capitalization. Using housing transactions data and exploiting variation in placement and design, we examine the capitalization of stormwater retention basins, a common green infrastructure project in suburban housing developments. Results show adjacency causes decreases in housing prices between 13 and 14% for the average home. Additionally this negative effect exacerbates with basin age. Rather than providing co-benefits, we find that stormwater basins generate a cost for proximate households.

The Economic Implications of House Price Capitalization: A Synthesis

In this article, I synthesize an emerging literature that explores the conditions under which public and private investments and intergovernmental transfers are capitalized into local house prices and the broader economic implications of such capitalization. The main insights are: (1) house price capitalization is more pronounced in locations with strict regulatory and geographical supply constraints; (2) capitalization can induce the provision of durable local public goods and club goods; and (3) capitalization effects—which are habitually ignored by policy‐makers—have important adverse consequences for a wide range of policies such as intergovernmental aid and the mortgage interest deduction.

Determinants of the Homeownership Rate: An International Perspective

We present a comprehensive model of household tenure choice that guides our review of the literature on the impacts of tax and subsidy policies and focuses our critiques of various methodologies. We discuss the impacts on the likelihood of homeownership of house price capitalization and individuals' choices of household structure, loan-to-value ratio, and wealth accumulation. We argue that the best empirical studies use panel household-level data and a large set of measures of housing taxes and subsidies, macroeconomic variables, and household characteristics. We review three studies that illustrate the benefits and challenges of modeling the homeownership decision across countries.

Determinants of the Homeownership Rate: A Survey of Recent Contributions

This study reviews the literature on the determinants of a country’s homeownership rate including factors such as demographic characteristics, household level economic variables, and government housing policies. We present a comprehensive model of a household’s tenure choice, one that allows for the taxation of imputed rental income and capital gains, deductions of mortgage interest, property taxes, and other expenses, subsidies to owners and renters, and borrowing constraints. This model is used throughout the paper to compare countries’ tax and subsidy policies toward housing and critique various methodologies. We emphasize that homeownership cannot be considered in a static framework. Rather, factors such as house price capitalization effects and households’ choices of household structure, mortgage loan-to-value ratio, and wealth accumulation must be considered. We argue that the best empirical studies are ones that use panel household-level data and have access to a large set of measures of housing taxes and subsidies, macroeconomic variables, and household characteristics. Only in this framework can one study the variations in effects of influential variables on different types of households who live in different locations. We conclude with a review of three such analyses of the variations in homeownership rates across developed countries.

The Dynamics of House Price Capitalization and Locational Sorting: Evidence from Air Quality Changes

Despite extensive use of housing data to reveal valuation of non-market goods, the process of house price capitalization remains vague. Using the restricted access American Housing Survey, a high-frequency panel of prices, turnover, and occupant characteristics, this paper examines the time path of capitalization and preference-based sorting in response to air quality changes caused by differential regulatory pressure from the 1990 Clean Air Act Amendments. The results demonstrate that owner-occupied units capitalize changes immediately, whereas rent capitalization lags. The delayed but sharp rent capitalization temporally coincides with evidence of sorting, suggesting a strong link between location choices and price dynamics.

If We Build it, Will They Pay? Predicting Property Price Effects of Transport Innovations

In this study I apply a gravity-type labor-market accessibility model to the Greater London Area to investigate house price capitalization effects. The spatial scope of labor-market effects is found to be about 60 minutes. Doubling accessibility increases the utility of an average household by about 12%. I combine the gravity approach with a transport decision model that takes into account the urban rail network architecture, allows for mode switching, and thus accounts for the effective accessibility offered by a station, to predict the property price effects of the 1999 Jubilee Line and DLR extension. A considerable degree of heterogeneity is predicted both in terms of the magnitude as well as the spatial extent of price effects around new stations. A quasi-experimental property price analysis reveals that the model performs well in predicting the effective capitalization effects, suggesting that the approach might be a viable ingredient in transport planning.

The Economic Implications of House Price Capitalization: A Survey of an Emerging Literature

House price capitalization – the adjustment of house prices to changes in local public service and tax levels – has long been thought to be a means of testing for efficiency in the local public sector. In this article I argue that the extent of house price capitalization itself may have important economic implications. In doing so I synthesize an emerging literature that explores the conditions under which public and private investments and intergovernmental transfers are capitalized into local house prices and the broader implications of such capitalization. The main insights are: (i) House price capitalization is more pronounced in locations with strict regulatory and/or geographical/physical supply constraints; (ii) capitalization can – under certain conditions – induce the provision of durable local public goods and club goods; and (iii) capitalization effects – which are habitually ignored by policy makers – have important adverse consequences for a wide range of policies such as intergovernmental aid or the mortgage interest deduction

New housing supply and the dilution of social capital

This paper examines the role of local housing supply conditions for social capital investment. Using an instrumental variables approach and data from the Social Capital Community Benchmark Survey, it is documented that the positive link between homeownership and individual social capital investment is largely confined to more built-up neighborhoods (with more inelastic supply of new housing). The empirical findings provide support for the proposition that in these localities house price capitalization provides additional incentives for homeowners to invest in social capital. The findings are also largely consistent with the proposition that built-up neighborhoods provide protection from inflows of newcomers that could upset a mutually beneficial equilibrium involving reciprocal cooperation. However, the results do not appear to be driven by selection based on inherent differences in social aptitudes or by Tiebout sorting.

Why do households without children support local public schools? Linking house price capitalization to school spending

While residents receive similar benefits from many local government programs, only about one-third of all households have children in public schools. We argue that capitalization of school spending into house prices can encourage even childless residents to support spending on schools. We identify a proxy for the extent of capitalization—the supply of land available for new development—and show that towns in Massachusetts with little undeveloped land have larger changes in house prices in response to a plausibly exogenous spending shock. Towns with little available land also spend more on schools. We extend these results using data from school districts in 46 states, showing that per pupil spending is positively related to the percentage of developed land. This positive correlation persists only in districts where the median resident is a homeowner and is stronger in districts with more elderly residents who do not use school services and have a shorter expected duration in their home. Our findings support models in which capitalization encourages the provision of durable local public goods and provides an additional reason why some elderly support local school spending.

Who's in charge of the central city? The conflict between efficiency and equity in the design of a metropolitan area

A circular metropolitan area consists of a central city surrounded by a suburb. Households sort over the two jurisdictions based on public service levels and their costs of commuting to the metropolitan center. Using numerical simulations, we show that (1) there typically exist two equilibria: one in which the poor form the voting majority in the central city and the other in which the rich form the majority in the central city; (2) there is an efficiency vs. equity trade-off as to which equilibrium is preferred; and (3) if the central city contains only poor households, equity favors expanding the central city to include rich households. The third result arises not because of a fiscal subsidy from rich to poor households induced by a property tax but rather because of a change in house price capitalization.

A Note on the Bias in House Price Capitalization Models

Recent research efforts concerning the capitalization of low‐rate, seller‐supplied financing have employed hedonic pricing models that may produce biased estimates of the capitalization process. The bias results when properties sold with owner financing are included in the researcher's sample. This note discusses the nature of the bias and suggests a possible solution.

Estimating Property Tax Capitalization: A Further Comment

Previous articleNext article No AccessConfirmations and ContradictionsEstimating Property Tax Capitalization: A Further CommentRaymond M. ReinhardRaymond M. Reinhard Search for more articles by this author PDFPDF PLUS Add to favoritesDownload CitationTrack CitationsPermissionsReprints Share onFacebookTwitterLinkedInRedditEmail SectionsMoreDetailsFiguresReferencesCited by Journal of Political Economy Volume 89, Number 6Dec., 1981 Article DOIhttps://doi.org/10.1086/261033 Views: 13Total views on this site Citations: 26Citations are reported from Crossref Copyright 1981 The University of ChicagoPDF download Crossref reports the following articles citing this article:Seth H. Giertz, Rasoul Ramezani, Kurt J. Beron Property tax capitalization, a case study of Dallas County, Regional Science and Urban Economics 89 (Jul 2021): 103680.https://doi.org/10.1016/j.regsciurbeco.2021.103680Christian A. L. Hilber The Economic Implications of House Price Capitalization: A Synthesis, Real Estate Economics 45, no.22 (Dec 2015): 301–339.https://doi.org/10.1111/1540-6229.12129Kimberly Key, Teresa Lightner, Bing Luo The Effects of Property Taxes and Public Service Benefits on Housing Values: A County-Level Analysis, (Dec 2016): 1–31.https://doi.org/10.1108/S1058-749720160000023007Kimberly G. Key, Teresa A. Lightner The Relation between Business Property Values and Local Property Taxes, Journal of the American Taxation Association 37, no.11 (Oct 2014): 103–128.https://doi.org/10.2308/atax-50951Jeremy Grant Moulton, Bennie D. Waller, Scott Wentland Capitalization of Targeted Property Tax Relief in Home Prices: Evidence from Virginia Elections, SSRN Electronic Journal (Jan 2015).https://doi.org/10.2139/ssrn.2661002Frank Peck, Simon Parry, Gail Mulvey, Keith Jackson, Ignazio Cabras, Jacqui Jackson The Role and Significance of Rates Relief for Supporting Businesses in Wales, Environment and Planning C: Government and Policy 32, no.66 (Dec 2014): 982–999.https://doi.org/10.1068/c1224bShaun A. Bond, Ben Gardiner, Peter Tyler The impact of enterprise zone tax incentives on local property markets in England: who actually benefits?, Journal of Property Research 30, no.11 (Mar 2013): 67–85.https://doi.org/10.1080/09599916.2012.721381David Stadelmann, Steve Billon Capitalisation of Fiscal Variables and Land Scarcity, Urban Studies 49, no.77 (Aug 2011): 1571–1594.https://doi.org/10.1177/0042098011415433Mustafa Öktem, Ju-Chin Huang Property tax shifting under imperfect competition, Applied Economics 43, no.22 (Jan 2011): 139–152.https://doi.org/10.1080/00036840802446614Christian A. L. Hilber The Economic Implications of House Price Capitalization: A Survey of an Emerging Literature, SSRN Electronic Journal (Jan 2011).https://doi.org/10.2139/ssrn.2403043David Stadelmann Which factors capitalize into house prices? A Bayesian averaging approach, Journal of Housing Economics 19, no.33 (Sep 2010): 180–204.https://doi.org/10.1016/j.jhe.2010.07.002Stacy Sirmans, Dean Gatzlaff, David Macpherson The History of Property Tax Capitalizationin Real Estate, Journal of Real Estate Literature 16, no.33 (Jun 2020): 327–344.https://doi.org/10.1080/10835547.2008.12090233David Stadelmann A Bayesian Averaging Approach to the Capitalization of Taxes, Public Goods and Location Specific Factors in the Price of Housing, SSRN Electronic Journal (Jan 2008).https://doi.org/10.2139/ssrn.1017237David Stadelmann, Reiner Eichenberger The Ricardian Equivalence Versus Debt Capitalization in Local Public Finance, SSRN Electronic Journal (Jan 2008).https://doi.org/10.2139/ssrn.1088261Deborah A. Carroll, Robert J. Eger Brownfields, Crime, and Tax Increment Financing, The American Review of Public Administration 36, no.44 (Jul 2016): 455–477.https://doi.org/10.1177/0275074006289645Theodore M. Crone Capitalization of the Quality of Local Public Schools: What Do Home Buyers Value?, SSRN Electronic Journal (Jan 2006).https://doi.org/10.2139/ssrn.928452 By Thomas S. Dee The Capitalization of Education Finance Reforms Dee, The Journal of Law and Economics 43, no.11 (Jul 2015): 185–214.https://doi.org/10.1086/467452William A. Fischel Municipal Corporations, Homeowners, and the Benefit View of the Property Tax, SSRN Electronic Journal (Jan 2000).https://doi.org/10.2139/ssrn.233210 Oded Palmon and Barton A. Smith New Evidence on Property Tax Capitalization Palmon & Smith, Journal of Political Economy 106, no.55 (Jul 2015): 1099–1111.https://doi.org/10.1086/250041Oded Palmon, Barton A Smith A New Approach for Identifying the Parameters of a Tax Capitalization Model, Journal of Urban Economics 44, no.22 (Sep 1998): 299–316.https://doi.org/10.1006/juec.1997.2072Keith Dowding, Peter John, Stephen Biggs Tiebout : A Survey of the Empirical Literature, Urban Studies 31, no.4-54-5 (May 1994): 767–797.https://doi.org/10.1080/00420989420080671Anwar M. Shah Empirical Tests for Allocative Efficiency in the Local Public Sector, Public Finance Quarterly 20, no.33 (Aug 2016): 359–377.https://doi.org/10.1177/109114219202000305Anwar Chaudry-Shah CAPITALIZATION AND THE THEORY OF LOCAL PUBLIC FINANCE: AN INTERPRETIVE ESSAY, Journal of Economic Surveys 2, no.33 (Sep 1988): 209–243.https://doi.org/10.1111/j.1467-6419.1988.tb00045.x References, (Jan 1988): 207–211.https://doi.org/10.1016/B978-0-12-771060-0.50014-6Ferdinand P. Schoettle A three-sector model for real property tax incedence, Journal of Public Economics 27, no.33 (Aug 1985): 355–370.https://doi.org/10.1016/0047-2727(85)90056-8G. Donald Jud Public Schools and Urban Development, Journal of the American Planning Association 51, no.11 (Nov 2007): 74–83.https://doi.org/10.1080/01944368508976803