Robyn K. Welch
Burgis Associates, Inc.

John I. Carruthers
U.S. Department of Housing and Urban Development
University of Washington

Brigitte S. Waldorf
Purdue University

This article reflects the views of the author and does not necessarily reflect the views of the U.S. Department of Housing and Urban Development.

FULL TEXT: Adobe Acrobat (*.pdf, 683 KB)

The research presented in this article is motivated by four questions: Do public service expenditures help explain interregional variation in the cost of housing? What types of spending make the most difference? How does the effect of these expenditures on housing values compare to their effect on rents? Finally, do these effects change over time? These questions are investigated through an econometric analysis of housing values and rents in a national data set of metropolitan counties. A two-equation model is estimated using seemingly unrelated regression to enable contemporaneous correlation across the error terms. The initial model, containing per household total direct spending, is used to develop coefficients that are restricted in subsequent models so that alternative service expenditures and different time lags can be tested while holding all else constant. The findings suggest that police protection makes the most difference for owners and renters alike, with education and fire protection, respectively, being close seconds. Homeowners place greater weight on expenditures that affect exchange value, while renters place greater weight on factors that affect use value; and certain services have a more enduring effect than others. This article adds to the existing body of knowledge by linking a broad spectrum of public goods and services to the place-to-place cost of housing. Future research should focus on the connections between intermediate and final outputs from an interregional perspective and, as an extension, how they relate to the pace of economic growth and other measures of regional well-being.