The Micro-Cosmos of German Cities: New Insights into the Supply of and Demand for Urban Amenities

Abstract

The value of location, arguably the most important determinant of real estate prices, is a composite of a broad range of characteristics such as access to labor markets, natural amenities like parks and waterfronts, urban amenities like restaurants and cultural facilities and the socio-economic characteristics of the resident population. To consumers searching for new living space, the cost of collecting relevant information on neighborhoods they are not familiar with is high. For developers, real estate agents and policy makers, the changing nature of consumer preferences for the various types of amenities are typically hard to observe, creating uncertainty as to where and how to best provide and promote desirable living space. The results are frictions like higher moving costs and reduced mobility, imperfect product differentiation and welfare losses. A new application, POTENTIALSPACES, aims at reducing these frictions by developing (a) micro-geographic indices that capture the endowment with such amenities covering the whole of Germany, (b) a web interface to search for a preferred combination of amenities, and (c) a real-time monitoring system of the demand for amenities. Using POTENTIALSPACES as an example, this article introduces the theoretical underpinnings and practical applications of “big data” in the realm of real estate.