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The Dynamics of House Price Capitalization and Locational Sorting: Evidence from Air Quality Changes

September 2012

Written by: Corey Lang

Working Paper Number:

CES-12-22

Abstract

Despite extensive use of housing data to reveal valuation of non-market goods, the process of house price capitalization remains vague. Using the restricted access American Housing Survey, a high-frequency panel of prices, turnover, and occupant characteristics, this paper examines the time path of capitalization and preference-based sorting in response to air quality changes caused by differential regulatory pressure from the 1990 Clean Air Act Amendments. The results demonstrate that owner-occupied units capitalize changes immediately, whereas rent capitalization lags. The delayed but sharp rent capitalization temporally coincides with evidence of sorting, suggesting a strong link between location choices and price dynamics.

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market, economist, econometric, valuation, emission, pollution, environmental, polluting, housing, residential, relocation, socioeconomic, neighborhood, amenity, apartment, house, rent, renter, homeowner, housing survey

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Metropolitan Statistical Area, Standard Industrial Classification, Center for Economic Studies, Bureau of Economic Analysis, County Business Patterns, Environmental Protection Agency, Chicago Census Research Data Center, Journal of Economic Literature, Research Data Center, Geographic Information Systems, National Ambient Air Quality Standards, North American Industry Classification System, American Housing Survey, CAAA

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