What Are Cities Worth? Land Rents, Local Productivity, and the Capitalization of Amenity Values
Across cities, estimates of local land rents and firm productivity are inferable from wage and housing-cost data using knowledge of the housing cost function. Differences in amenity values are capitalized into the sum of local land values and federal-tax payments. A calibrated model is used to predict how amenities are capitalized into land rents, wages, and housing costs, and with U.S. data, to estimate land-rent, firm-productivity, and total amenity-value differences of cities. Private land values vary mainly from consumption amenities, while social land values, from productive ones. The most productive and valuable cities are coastal, sunny, mild, educated, and large.
This paper was revised on May 17, 2012