Amenity Rent Capture

Amenity rent capture is the political appropriation of the location rents generated by a region’s natural amenities — and the claim that how the capture happens determines whether anyone moves. Philip Graves’s 2026 working paper Taxing Paradise argues the mechanism explains California’s three decades of net domestic out-migration: a state whose uniform and complementary climates should make it a persistent net gainer of migrants has instead lost residents to other states every year since about 1990, because the rents its amenities generate are captured through mobile tax bases and housing-supply restrictions rather than through a land tax. ¹

The framework: amenities capitalize into rents

The underlying theory is the Roback-Rosen spatial-equilibrium model, in which interregional amenity differences are capitalized into some combination of land rents and wages — workers accept lower wages and pay higher housing costs to live in nicer places, and in equilibrium no one can improve their lot by moving. Albouy’s What Are Cities Worth? (NBER WP 14981, published JPE 2016) is the canonical modern statement: land rents, local productivity, and the capitalization of amenity values are jointly inferred across US metro areas, and federal taxes are shown to distort the capitalization — land values over-capitalize quality-of-life amenities (which lower wages and hence federal tax payments) and under-capitalize trade-productive amenities (which raise them). ²

Graves’s argument: the form of capture determines who moves

Graves’s contribution is to distinguish capture mechanisms by their incidence. Capture through a land tax is borne by landowners: the tax capitalizes into lower land prices, no household’s location calculus changes, and nobody moves. Capture through mobile tax bases — above all a steeply progressive income tax — and through restrictions on housing supply does move people, and moves particular people: high earners pay far more than the value of services received when the revenue also funds redistribution, pushing them out directly; the income tax also raises the pre-tax wages firms must pay, so jobs leave with households. Proposition 13 shifts capture further onto mobile bases (by capping the property-tax leg) and locks long-tenured owners in place, so observed out-migration understates the underlying pressure. The evidence offered: IRS data for 2022-23 show California’s out-migrants outnumbering in-migrants by 40 percent overall but 64 percent among households earning $200,000 or more, a pattern reversed in low-tax states; cross-state comparison shows no relation between tax burdens and natural amenities, consistent with competition among amenity-rich states limiting how much any one of them can capture — California taxes well beyond its neighbors and loses residents disproportionately to them. ³

Why it matters

The argument reframes the standard “people are fleeing California taxes” story. The naive version treats out-migration as revealed dispreference for the state; Graves’s version says the amenities are unchanged and the location rents are real — what changed is that those rents are being extracted through instruments with mobile bases, so extraction shows up as selective migration of exactly the mobile. A land tax would capture the same rents with no migratory response (the standard result that a tax on an inelastically supplied factor is non-distortionary, running from Ricardo through Henry George to the Arnott-Stiglitz “Henry George Theorem” in urban public finance). The paper is a working-paper argument, not a settled finding: the IRS net-flow asymmetry is the strongest evidence, while the cross-state tax-amenity comparison cannot hold production advantages constant, as the author concedes. Confidence is medium and the claim is contested by the broader literature on California out-migration (housing costs, job sprawl, remote work). ⁴

Connections

• abundance-agenda — the housing-supply half of the mechanism: artificial scarcity in housing is one of the two capture channels; the abundance agenda is the supply-side reform program aimed at the same scarcity.
• road-to-housing-act-2026 — the federal legislative attempt at the housing-supply side of the same problem.
• open-access-order — amenity-rent capture is a limited-access-order move: politically organized extraction of rents from a fixed resource, with the extraction mechanism shaping who can afford to stay.
• trust-and-social-capital — the amenity side: some of what capitalizes into location rents is social capital (safe streets, competent governance), not just climate.

Sources

• Philip E. Graves 2026 — Taxing Paradise: Political Capture of Amenity Rents and the Missing Migration to California
• David Albouy 2016 — What Are Cities Worth? Land Rents, Local Productivity, and the Capitalization of Amenity Values
• Tyler Cowen 2026 — California in-migration and out-migration

Footnotes

1. Philip E. Graves 2026 — Taxing Paradise: Political Capture of Amenity Rents and the Missing Migration to California ↩

2. David Albouy 2016 — What Are Cities Worth? Land Rents, Local Productivity, and the Capitalization of Amenity Values ↩

3. Philip E. Graves 2026 — Taxing Paradise: Political Capture of Amenity Rents and the Missing Migration to California ↩

4. Philip E. Graves 2026 — Taxing Paradise: Political Capture of Amenity Rents and the Missing Migration to California ↩