Capitalization as a Two-Part Tariff: The Equilibrium Structure of Housing Prices
Presented by:
Spencer Banzhaf
North Carolina State University
Friday, January 30, 2026
12:00 pm-1:15 pm
Taylor-Hibbard Seminar Room (Rm103)
Standard hedonic housing price regressions may be mis-specified. They impose that neighborhood amenities and quality characteristics affect prices proportionately. In contrast, we suggest that neighborhood amenities may be capitalized via a two-part tariff: an extensive margin “ticket” to enter a community as well as an intensive margin price per unit of housing services. A theoretical model shows that extensive margin pricing will emerge when there are binding restrictions on the number of housing units. Using data on housing transactions across U.S. urban markets, we show that two-part pricing is ubiquitous and especially pronounced in markets with high regulation and an older housing stock. Two-part pricing is relevant for hedonic estimation of local amenities: in particular, ignoring it will understate the willingness to pay of poorer households. We illustrate this fact with an application to school quality, using a boundary discontinuity design with our nationwide data.