What Are Cities Worth? Land Rents, Local Productivity, and the Capitalization of Amenity Values
Estimates of local land rents and firm productivity from wage and housing-cost data should incorporate parameters from the housing production function. Across cities, differences in amenity values are capitalized into the sum of local land values and federal-tax payments. Improved modeling is used to predict how amenities affect wages and housing costs, estimate quality-of-life and firm-productivity differences across U.S. cities, and revise estimates of the value of public infrastructure investments. Land values vary mainly from quality-of-life differences, while total city values vary mainly from firm-productivity differences. The most valuable cities are generally coastal, sunny, and have large or well-educated populations.
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