Essays in urban economics and housing market capitalization

This thesis consists of three urban economics studies of housing market capitalization. These studies use house prices with hedonic price estimation to identify homebuyers' willingness to pay for school quality, energy efficiency and future transportation improvement in the Helsinki Metropolitan Area in Finland. In Chapter 1, we use boundary discontinuity research design to study whether school quality differences are capitalized into house prices. We find that one standard deviation increase in average test scores increases prices on average by 3 percent, which is comparable to findings from the U.K and the U.S. We argue that this surprisingly large effect is at least partly explained by the inelasticity of housing supply, as we use data from a densely populated urban area. We also show that the effect depends on local land supply conditions within the city and is highest in areas with inelastic supply. Furthermore, the price premium seems to be related to pupils' socioeconomic background rather than school effectiveness. Chapter 2 analyzes if homebuyers make technology choices that are economically efficient by considering how different heating technologies capitalize into house prices. We exploit variation in technologies that houses are locked into at construction time to identify the stand-alone value of having a cost-saving technology in the house. For the two main technologies, electric and district heating, the estimated price discount is 5-6% of the house value for electric heating, coming very close to the capitalized value of the cost differential obtained from external data on energy contract prices. In Chapter 3, I quantify what is the magnitude of the housing market anticipation effect brought on by the announcement of a new metro line. I use the decision to build the West Metro as a quasi-experimental setting that created variation in the expected metro station accessibility in time and analyze if housing prices reacted to the announcement before the new metro line becomes operational. I find that housing markets adjusted to the information about the infrastructure investment swiftly after the construction works began in 2010. Apartments within 800 meters from the new metro stations include a positive price premium that converges around four percent even five years before the metro became operational.