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What are Cities Worth? Land Rents, Local Productivity, and the Capitalization of Amenity Values

70 Pages Posted: 26 May 2009  

David Albouy

University of Michigan at Ann Arbor - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: May 2009

Abstract

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

Albouy, David, What are Cities Worth? Land Rents, Local Productivity, and the Capitalization of Amenity Values (May 2009). NBER Working Paper No. w14981. Available at SSRN: https://ssrn.com/abstract=1408901

David Albouy (Contact Author)

University of Michigan at Ann Arbor - Department of Economics ( email )

611 Tappan Street
Ann Arbor, MI 48109-1220
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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