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Abstract for:

Capitalization of Central Government Grants into Local House Prices: Panel Data Evidence from England

Christian A. L.  Hilber,  Teemu  Lyytikäinen,  Wouter  Vermeulen,  September 2010
Paper No' SERCDP0057: | Full paper (pdf)
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Keywords: local public finance; house prices, supply constraints, central government grants

JEL Classification: H2; H3; H7; H81; R21; R31

Is hard copy/paper copy available? YES - Paper Copy Still In Print.
This Paper is published under the following series: SERC Discussion Papers
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We explore the impact of central government grants on local house prices in England using a panel data set of local authorities (LAs) from 2001 to 2008. Electoral targeting of grants to LAs by the incumbent national government provides an exogenous source of variation in grants that we exploit to identify their causal effect on house prices. Our results indicate substantial or even full capitalization. We also find that house prices respond more strongly in locations in which new construction is constrained by physical barriers. Our results imply that (i) during our sample period grants were largely used in a way that is valued by the marginal homebuyer and (ii) increases in grants to a LA may mainly benefit the typically better off property owners (homeowners and absentee landlords) in that LA