Big House, Little House: Relative Size and Value

Abstract

How do markets value relative house size in a neighborhood? The literature offers differing rationales: atypical houses sell for less, capitalization of property taxes penalizes larger and benefits smaller houses in mixed neighborhoods and conspicuous consumption reinforces the value of relatively larger houses and reduces the value of relatively smaller houses to consumers. Using a simultaneous price-liquidity model that controls for neighborhood supply and demand conditions, this article finds a dominant tax capitalization effect on price and marketing time that appears to override any extant atypicality or conspicuous consumption effects.

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