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Are all Homeowners Willing to Pay for Better Schools? ─ Evidence from a Finite Mixture Model Approach

Author

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  • Jee W. Hwang

    (College of Business Administration, Northern New Mexico College)

  • Chun Kuang

    (East Carolina University)

  • Okmyung Bin

    (East Carolina University)

Abstract

School quality indicators such as student test scores have been shown to be capitalized into the value of local homes. The presence of households with different preferences for education implies that the implicit price of improvements in school quality might vary even within a region. In this paper, we employ a finite mixture model (FMM) to capture unobserved heterogeneity in household preferences. Using school quality and residential property sales data from Pitt County, North Carolina, we find evidence of two subpopulations of houses, where the prices for one group are virtually invariant to school quality. Consistent with recent research by Davis et al. (2017) these results indicate that heterogeneous valuation of educational quality by households with different socio-economic backgrounds should be taken into consideration when devising policies targeted at the local level.

Suggested Citation

  • Jee W. Hwang & Chun Kuang & Okmyung Bin, 2019. "Are all Homeowners Willing to Pay for Better Schools? ─ Evidence from a Finite Mixture Model Approach," The Journal of Real Estate Finance and Economics, Springer, vol. 58(4), pages 638-655, May.
    • Handle: RePEc:kap:jrefec:v:58:y:2019:i:4:d:10.1007_s11146-018-9658-z
    DOI: 10.1007/s11146-018-9658-z
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    1. Rajapaksa, Darshana & Gono, Marcel & Wilson, Clevo & Managi, Shunsuke & Lee, Boon & Hoang, Viet-Ngu, 2020. "The demand for education: The impacts of good schools on property values in Brisbane, Australia," Land Use Policy, Elsevier, vol. 97(C).

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    More about this item

    Keywords

    Home price premium; Heterogeneity; Finite mixture model; School quality;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • I25 - Health, Education, and Welfare - - Education - - - Education and Economic Development
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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