Location Sorting and Endogenous Amenities: Evidence from Amsterdam
This paper argues that the endogeneity of amenities plays a crucial role in determining the welfare distribution across a city’s residents. We quantify this mechanism by constructing a dynamic model of residential choice with heterogeneous households, where consumption amenities are the equilibrium outcome of a market for non-tradables. We estimate our model using Dutch microdata and leverage variation in Amsterdam’s spatial distribution of tourists as a demographic shifter, finding significant heterogeneity across residents’ preferences and in the responses of amenities to demographic com- position. We show that the distributional effects of mass tourism hinge on this heterogeneity: after initial rent increases due to a reduction in housing supply, younger groups—the most similar to tourists—are compensated by having amenities tilt toward their preferences, while older families are additionally hurt by this amenity shift. Finally, we show that targeted regulations on amenities dominate housing market regulations when preferences over amenities are sufficiently heterogeneous.