The economics implications of house price capitalization a survey of an emerging literature

Christian Hilber

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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

Keywords: house price capitalization; homeownership; local public goods; club goods; land use regulation; land and housing supply; incentives to invest; redistribution (search for similar items in EconPapers)
JEL-codes: D71 R21 R31 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2011-10
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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