Intrametropolitan Decentralization: Is Government Structure Capitalized in Residential Property Values?

Stephen Billings and Thomas G. Thibodeau

Online First™, 17 September 2009

Abstract

This paper examines the influence that the intrametropolitan growth in special districts has on residential property values. Our empirical approach tests whether the benefits of decentralizing local public good providers increases, decreases or leaves residential property appreciation rates unchanged. Past research in this area has been limited by the lack of variation in government structure within a region and by the self-selection of areas that decentralize governments. This research overcomes these limitations by 1) comparing appreciation rates for single-family homes that were located in areas that added local governments to appreciation rates for properties that were not; and 2) employing an estimation technique that border matches repeat sales to control for the self-selection of government structure. Overall, empirical results indicate that institutional decentralization has no influence on single-family property appreciation rates. It makes no difference whether the new government is the 3rd, 4th, 5th or 6th new jurisdiction–the new government does not influence appreciation rates. Residential property values for homes located in jurisdictions that added security special districts experienced rates of appreciation that were lower than otherwise comparable properties. Recreation, fire, water, sewer and other special districts had no measurable influence on appreciation rates. Empirical results also indicate that more overlap among local governments reduces appreciation rates. New governments created in areas whose residents have greater income heterogeneity increase appreciation rates. The distance separating the new government from existing governments, the land area of the new government and the creation of multiple new governments have no influence on appreciation rates. Finally, these results depend on the border matching repeat sales estimation technique employed here.Keywords  Government structure – Capitalization – Border matched repeat sales

JEL Classification  H1 – H21 – R50

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