What are Cities Worth? Land Rents, Local Productivity, and the Capitalization of Amenity Values
70 Pages Posted: 26 May 2009 Last revised: 9 Dec 2022
Date Written: May 2009
This article examines and quantifies the relationship between local amenities and prices in an equilibrium model, demonstrating the role of non-traded goods and federal taxes. I derive formulae using factor shares to infer local land rents, productivity, and the total value of amenities from wage and housing-cost data, applying them to U.S. metropolitan areas. The formulae address how “wage multipliers,” heterogeneity in non-traded firm productivity, and tax-driven amenity value expropriation affect price capitalization. Wage and housing-cost variations across metros are driven more by productivity than quality-of-life differences. The most productive and valuable cities are typically coastal, sunny, mild, educated and large.
Suggested Citation: Suggested Citation