Working Paper: NBER ID: w18125
Authors: David H. Autor; Christopher J. Palmer; Parag A. Pathak
Abstract: Understanding potential spillovers from the attributes and actions of neighborhood residents onto the value of surrounding properties and neighborhoods is central to both the theory of urban economics and the development of efficient housing policy. This paper measures the capitalization of housing market spillovers by studying the sudden and largely unanticipated 1995 elimination of stringent rent controls in Cambridge, Massachusetts that had previously muted landlords' investment incentives and altered the assignment of residents to locations. Pooling administrative data on the assessed values of each residential property and the prices and characteristics of all residential transactions between 1988 and 2005, we find that rent control's removal produced large, positive, and robust spillovers onto the price of never-controlled housing from nearby decontrolled units. Elimination of rent control added about $1.8 billion to the value of Cambridge's housing stock between 1994 and 2004, equal to nearly a quarter of total Cambridge residential price appreciation in this period. Positive spillovers to never-controlled properties account for more half of the induced price appreciation. Residential investments can explain only a small fraction of the total.
Keywords: Housing Market; Rent Control; Spillovers; Urban Economics
JEL Codes: D61; H23; R23; R31; R32; R38
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Removal of rent control in Cambridge (R21) | Significant positive spillovers onto the prices of never-controlled properties (R33) |
| Mean level of rent control exposure (R21) | Properties appreciated by roughly 12% more than those with no nearby controlled neighbors (R20) |
| One standard deviation above mean level of exposure (C29) | Houses appreciated by an additional 6% (R31) |
| Improvements in local amenities and changes in resident composition (R23) | Spillover effects (F69) |
| Efficiency costs of rent control (D61) | Significant relative to benefits perceived by residents (R20) |