Capitalization as a Two-Part Tariff: The Equilibrium Structure of Housing Prices

Spencer Banzhaf and Kyle Mangum

No 25699, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Standard hedonic housing price regressions may be mis-specified. They impose that neighborhood amenities affect prices proportionately. In contrast, we suggest that amenities may be capitalized via a two-part tariff: an extensive margin “ticket” to enter a community and an intensive margin price per unit of housing services. A theoretical model shows that extensive margin pricing will emerge when there are binding restrictions on the number of housing units. Using data on housing transactions across U.S. urban markets, we show that two-part pricing is ubiquitous and especially pronounced in markets with high land use regulation and/or an older housing stock. Moreover, two-part pricing is economically relevant: Ignoring it generally understates the willingness to pay of poorer households. We illustrate this pattern with an application to school quality, using a boundary discontinuity design in a two-part pricing framework. We provide user-friendly MATLAB and R code for estimating the generalized model.

JEL-codes: D45 H41 H73 Q51 R31 R52 (search for similar items in EconPapers)
Date: 2019-03
New Economics Papers: this item is included in nep-ure
Note: EEE
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Citations: View citations in EconPapers (1)

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