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The Economics Implications of House Price Capitalization A Survey of an Emerging Literature

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  • Christian A. L. Hilber

Abstract

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.

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Bibliographic Info

Paper provided by Spatial Economics Research Centre, LSE in its series SERC Discussion Papers with number 0091.

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Date of creation: Oct 2011
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Handle: RePEc:cep:sercdp:0091

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Web page: http://www.spatialeconomics.ac.uk/SERC/publications/default.asp

Related research

Keywords: House price capitalization; homeownership; local public goods; club goods; land use regulation; land and housing supply; incentives to invest; redistribution;

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Cited by:
  1. Wenjie Wu, 2012. "Does Public Investment Spur the Land Market?: Evidence from Transport Improvement in Beijing," SERC Discussion Papers 0116, Spatial Economics Research Centre, LSE.
  2. Ryan M. Gallagher & Haydar Kurban & Joseph J. Persky, 2013. "Small Homes, Public Schools, and Property Tax Capitalization," Working Papers 13-04, Center for Economic Studies, U.S. Census Bureau.
  3. Wouter Vermeulen & Maarten Allers, 2013. "Fiscal Equalization and Capitalization: Evidence from a Policy Reform," CPB Discussion Paper 245, CPB Netherlands Bureau for Economic Policy Analysis.

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