Are Enterprise Zones Benefits Capitalized into Commercial Property Values? The French case

A new class of policies explicitly targets transfer toward particular zones rather than groups of individuals, the so-called place-based policies. Among them, the Enterprise Zones target development incentives to economically distressed areas. It is of primary interest to assess the effect of this type of programs on commercial real estate prices because capitalization of local tax cuts into property values potentially hinders the ability of Enterprise Zones to stimulate economic development and local employment. I develop a simple model where local subsidies on labor affect positively business real-estate prices at the equilibrium. The inflationary effect depends on the wage credit rate, on the output elasticity of real-estate in the production and on the real-estate supply elasticity. I then assess the impact of French local Enterprise Zones- the "Zones Franches Urbaines" (ZFUs)- on commercial property values and test our theoretical predictions. To cope with the endogeneity problem due to the fact that zones designated by the policy are different from the non-targeted zones, I implement various identification strategies using spatial and time differencing. My empirical analysis is based on a unique dataset which provides the geocoded transactions of commercial real estate gathered by the French Notaries Chamber over the period 2000-2012 for all the French regions. The empirical results imply that ZFU status has a positive effect on commercial property values. I find heterogeneous effects according to the type of industry and the level of real-estate supply elasticity in the zone.