- Editors' Summary
Brookings-Wharton Papers on Urban Affairs presents new research on urban economics to a broad audience of interested policy analysts and researchers. The papers and comments contained in this volume, the seventh in the series, were presented at a conference on October 19–20, 2006, at the Brookings Institution. The papers examine a number of issues that are relevant to urban economics, including the effects of government-sponsored enterprises (GSEs) on borrowing costs and homeownership, the impact of business improvement districts (BIDs) on local property values, the influence of large-scale job loss on the future economic development of metropolitan areas, and the effects of terrorism on urban form and land use. Half of the papers are devoted to a symposium on the economic, distributional, and welfare effects of the GSEs: Fannie Mae and Freddie Mac.
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Business improvement districts represent a growing attempt by downtown business interests—property owners in particular—to improve the environment in which they function and to provide services more similar to those provided in suburban malls, as central business districts continue to lose commercial and retail activity to suburban locations. City governments have generally supported these efforts, as their tax bases have been eroded as a result of business relocation from city to suburb. In "The Impact of Business Improvement Districts on Property Values: Evidence from New York City," Ingrid Gould Ellen, Amy Ellen Schwartz, and Ioan Voicu analyze a sample of forty-four BIDs in New York City established between 1976 and January 2002.
The formation of a BID requires that property owners within the designated area vote to levy a fee on their properties in order to provide additional services. Although it is well established that different parts of a city may receive different packages of city services, BIDs may emerge if local property owners demand more or different local public goods than the city provides. A [End Page ix] common slogan of BID proponents is "clean and safe," and the authors find that about half of BID funds in their New York sample are spent on security or maintenance.
There have been relatively few empirical studies of the effects of BIDs, and the existing studies have concentrated on their impacts on crime. Focusing on crime rates alone may understate the overall effect of BIDs, which attempt to improve the local environment in many ways. The authors argue that these overall effects are better estimated by their capitalization in property values. By gathering data on property sales by location, the authors can analyze property values within exact BID boundaries. Several types of comparisons are made to gauge the effects of BIDs on property values. The basic comparison is of differences in changes in the prices of properties in BIDs with those in similar locations without BIDs, that is, properties that share the same zip code but are located outside of the BID. Properties located immediately outside the boundaries of the BID are excluded from the comparison area to prevent any spillover effects from biasing the results. Any change over time in the size of the price differential between BID and comparison-area properties is attributed to formation of the BID. Prior to BID formation, commercial properties in BID areas sold for 30.7 percent more than comparable properties in the same general neighborhood. However, prices in both neighborhoods grew at the same rate. The authors estimate that the price differential between properties in the BIDs and those outside increased 15.7 percentage points after formation of the BIDs. Although the result is statistically significant, the standard error is relatively large. The authors estimate potential spillover effects of BIDs by analyzing their impact on the property values of commercial properties located immediately outside the BID, that is, properties that share the same zip code but are located outside of the BID. No evidence of spillover effects is found in these adjacent areas.
The authors also test whether the type of BID had a differential impact on commercial property values. They classify BIDs as large, mid-size, and small based on their average annual assessment revenues. The large BIDs contain primarily office space, the small...