Local Public Expenditures and Housing Prices

This paper estimates a hedonic price model which makes it possible to determine how the price of a unit varies with the set of attributes it possesses, in the Spanish housing market. Concretely, and by means of capitalisation, hedonic price models can be used as an instrument to capture how local public expenditures influence housing prices and, by extension, how homeowners can indirectly receive benefit from local public investment. Using individual data for dwellings from the city of Barcelona (Spain) for the period 1998-2001, it is found that local policies aimed at enhancing the quality of life or the location-specific characteristic of the city of Barcelona have a positive impact on housing values.