Capitalization as a Two-Part Tariff: The Role of Zoning

This paper shows that the capitalization of local amenities is effectively priced into land via a two-part pricing formula: a ticket\" price paid regardless of the amount of housing service consumed and a slope\" price paid per unit of services. We first show theoretically how tickets arise as an extensi ve margin price when there are binding constraints on the number of households admitted to a neighborhood. We use a large national dataset of housing transactions, property characte ristics, and neighbor- hood attributes to measure the extent to which local amenities are capitalized in ticket prices vis-a-vis slopes. We find that in most U.S. cities, the majori ty of neighborhood variation in pricing occurs via tickets, although the importance of tickets rises sharply in the stringency of land development regulations, as predicted by theor y. We discuss implications of two-part pricing for efficiency and equity in neighborhood sorting equilibria and for empirical estimates of willingness to pay for non-marketed amenit ies, which generally assume proportional pricing only.