Many researchers have noted that house prices reflect the capitalized value of local public services and amenities on house prices, but few empirical papers link the extent of house price capitalization to local spending decisions. In this paper we show that the causality indeed runs in both directions; in particular, local spending is higher in places with a greater degree of capitalization. To begin we make a simple observation; the degree to which house prices capitalize local amenities can vary substantially depending on the supply of land for new housing. In response to demand shocks, locations with more available land will have a larger adjustment in quantity, but a smaller adjustment in price and vice versa. We examine these predictions using a unique data set for Massachusetts that includes a measure of available land that varies by community and takes advantage of a property tax limit (Proposition 2½) that provides instruments for local changes in spending. Indeed, we find that fiscal variables and amenities are capitalized to a much greater extent in cities and towns with little available land, and confirm that these locations have a lower elasticity of land supply. We then show that localities with little available land spend more on schools, even after controlling for other factors that might affect demand for education. These results provide an alternative explanation for why suburban locations with little available land have relatively high spending on local schools.
1010 Affordable Housing Amazon Amenitization Architecture Artificial Intelligence Asia Australia automation Autonomous Vehicles bonds Borrowing Constraints Brexit California Canada Capital Business China Co-Working Environment coastal markets cold storage Colombia Commercial Brokerage Commercial Real Estate commissions Congestion consumer bias covid-19 CRE credit card market Credit Default Swaps Credit Insurance Credit Risk Transfers Culture Data Analytics data centers Data Collection Technology Debt Market Demand Demographics Density Development Discrete Choice disruption Diversity drones e-Commerce Economic Corridors economic policy economics education election studies Equity Funds Equity Market Ethnic Factors Europe Fannie Mae financial asset management Foreclosures Foreign Policy France Freddie Mac general equilibrium Global global economy Global Financial Crisis Globalization great depression Great Recession healthy buildings Hedonic hospitality Housing & Residential housing boom Housing Disease housing prices Housing Supply Identity Income Inequality India inflation Inter-generational mobility interest rates Investing jobs labor market Lagging Regions land use regulation Language life sciences Macroeconomics malls Market Pricing megacities Microeconomics Migration Minimum Payments Mixed-Use Mobility moral hazard mortgage insurance mortgage market Mortgage Rates Mortgages Multi-family Nation Building Non-Traditional Mortgages Office Market office sector pension funds Placed Based Policies Political Risk Price Discovery Private Equity Business public health public policy Public Schools real estate brokerage Real Estate Investment Real Estate Investment Trusts Recession Rental Retail Retirement reverse mortgages Risk Adjustment risk management risk-shifting robotics single family housing Slums Sorting South America Spatial Regions spillover effect stimulus package Sub-Prime Mortgages Supply Chains Sustainability Technology telecommunications trade transportation unemployment United States Urban Urbanization Warehouse welfare work from home