Journal of Real Estate Finance and Economics, 22:2/3, 339±352, 2001
# 2001 Kluwer Academic Publishers. Manufactured in The Netherlands.
City Quality-of-Life Dynamics: Measuring the
Costs of Growth
MATTHEW E. KAHN
Fletcher School of Law and Diplomacy, Tufts University, Medford, MA 02155
Two continuing California trends are population growth and improving air quality. Sprawl at the fringe of
metropolitan areas may lower quality of life by contributing to congestion, reducing open space and raising
pollution levels. This article studies this claim by estimating hedonic wage and rental regressions using California
1980 and 1990 micro census data. Real rents have fallen in faster-growing areas, suggesting that the ``growth
causes degradation'' hypothesis has some merit. Sprawl's damage to local quality of life would be higher if fringe
growth degrades air quality and households greatly value avoiding polluted areas. The relative importance of air
quality as an urban amenity is tested using data from Los Angeles county, an area where dramatic improvements
in smog have taken place. While high-ozone areas feature lower rents, the ozone's capitalization suggests that it is
not a key urban disamenity.
Key Words: quality of life, externalities, local growth
California is widely regarded as having a high quality of life relative to the rest of the
United States. In the early 1980s, the average California home was 53.2 percent more
expensive than the average home in the United States (Gabriel et al., 1995). Despite this
price differential, California's population has grown faster than the national average.
Between 1980 and 1990, California's population grew by 24.7 percent while the nation's
population grew by 8 percent.
Environmentalists have argued that an unintended consequence of such growth is that it
lowers local quality of life (http://www.smartgrowth.org/information/aboutsg.html):
In communities across the nation, there is a growing concern that current development
patternsÐdominated by what some call ``sprawl''Ðare no longer in the long-term
interest of our cities, existing suburbs, small towns, rural communities, or wilderness
areas. Though supportive of growth, communities are questioning the economic costs
of abandoning infrastructure in the city, only to rebuild it further out. They are
questioning the social costs of the mismatch between new employment locations in the
suburbs and the available work-force in the city. They are questioning the wisdom of
abandoning ``brown®elds'' in older communities, eating up the open space and prime