Research / BFI Working PaperDec 14, 2022

Location Sorting and Endogenous Amenities: Evidence from Amsterdam

Milena Almagro, Tomás Domínguez-Iino

This paper shows the endogeneity of amenities plays a crucial role in determining the wel-fare distribution of a city’s residents. We quantify this mechanism by building 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 mi-crodata and leveraging variation in Amsterdam’s spatial distribution of tourists as a demand shifter, finding significant heterogeneity in residents’ preferences over amenities and in the supply responses of amenities to changes in demand composition. This two-way heterogene-ity dictates the degree of horizontal differentiation across neighborhoods, residential sorting, and inequality. Finally, we show the distributional effects of mass tourism depend on this heterogeneity: following rent increases due to growing tourist demand for housing, younger residents—whose amenity preferences are closest to tourists—are compensated by amenities tilting in their favor, while the losses of older residents are amplified.

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BFI Working Paper Dec 14, 2022

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