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Neighborhood school characteristics: what signals quality to homebuyers?

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  • Kathy J. Hayes
  • Lori L. Taylor
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    Abstract

    Popular wisdom and economic research suggest that the quality of the neighborhood school should be an important determinant of housing values. Many researchers have found that housing values are higher where school spending or student test scores are higher. However, few economists consider these characteristics good indicators of school quality. Meanwhile, no one has examined whether the economists' notion of school quality-the school's marginal effect on students-is a school characteristic that matters to homebuyers. ; Using a model of new home purchases and historical data on homes in the Dallas Independent School District (DISD), Kathy Hayes and Lori Taylor demonstrate that property values do reflect the characteristics of the neighborhood school. They present evidence that property values reflect student test scores but not school expenditures. Interestingly, they also find that the relationship between test scores and property values arises from an underlying relationship between property values and the marginal effects of schools. Thus, their analysis suggests that homebuyers and economists share the same definition of school quality.

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    File URL: http://www.dallasfed.org/assets/documents/research/er/1996/er9604a.pdf
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    Bibliographic Info

    Article provided by Federal Reserve Bank of Dallas in its journal Economic and Financial Policy Review.

    Volume (Year): (1996)
    Issue (Month): Q IV ()
    Pages: 2-9

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    Handle: RePEc:fip:fedder:y:1996:i:qiv:p:2-9

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    Related research

    Keywords: Education ; Property tax;

    References

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    1. Summers, Anita A & Wolfe, Barbara L, 1977. "Do Schools Make a Difference?," American Economic Review, American Economic Association, vol. 67(4), pages 639-52, September.
    2. Hanushek, Eric A, 1986. "The Economics of Schooling: Production and Efficiency in Public Schools," Journal of Economic Literature, American Economic Association, vol. 24(3), pages 1141-77, September.
    3. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
    4. Rosen, Harvey S & Fullerton, David J, 1977. "A Note on Local Tax Rates, Public Benefit Levels, and Property Values," Journal of Political Economy, University of Chicago Press, vol. 85(2), pages 433-40, April.
    5. Michael L. Walden, 1990. "Magnet Schools and the Differential Impact of School Quality on Residential Property Values," Journal of Real Estate Research, American Real Estate Society, vol. 5(2), pages 221-230.
    6. Murphy, Kevin M & Topel, Robert H, 2002. "Estimation and Inference in Two-Step Econometric Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 88-97, January.
    7. G. Donald Jud & James M. Watts, 1981. "Schools and Housing Values," Land Economics, University of Wisconsin Press, vol. 57(3), pages 459-470.
    8. Bartik, Timothy J. & Smith, V. Kerry, 1987. "Urban amenities and public policy," Handbook of Regional and Urban Economics, in: E. S. Mills (ed.), Handbook of Regional and Urban Economics, edition 1, volume 2, chapter 31, pages 1207-1254 Elsevier.
    9. Bradbury, K-L & Case, K-E & Mayer, C-J, 1995. "School Quality, Local Budgets, and Property Values : A Re-Examination of Capitalization," Papers 95-15, Wellesley College - Department of Economics.
    10. Sonstelie, Jon C. & Portney, Paul R., 1980. "Gross rents and market values: Testing the implications of Tiebout's hypothesis," Journal of Urban Economics, Elsevier, vol. 7(1), pages 102-118, January.
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