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How Much Do Public Schools Really Cost? Estimating the Relationship Between House Prices and School Quality

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  • Ian Davidoff
  • Andrew Leigh

Abstract

This paper investigates the relationship between housing prices and the quality of public schools in the Australian Capital Territory. To disentangle the effects of schools and other neighbourhood characteristics on the value of residential properties, we compare sale prices of homes on either side of high school attendance boundaries. We find that a 5 percent increase in test scores (approximately one standard deviation) is associated with a 3.5 percent increase in house prices. Our result is in line with private school tuition costs, and accords with prior research from Britain and the United States. Estimating the effect of school quality on house prices provides a possible measure of the extent to which parents value better educational outcomes.

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Bibliographic Info

Paper provided by Centre for Economic Policy Research, Research School of Economics, Australian National University in its series CEPR Discussion Papers with number 558.

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Date of creation: Jul 2007
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Handle: RePEc:auu:dpaper:558

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Keywords: housing demand; school quality;

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References

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  1. Epple, Dennis & Romano, Richard E, 1998. "Competition between Private and Public Schools, Vouchers, and Peer-Group Effects," American Economic Review, American Economic Association, vol. 88(1), pages 33-62, March.
  2. Steve Bradley & Mirko Draca & Colin Green, 2004. "School Performance in Australia: Is There a Role for Quasi-Markets?," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 37(3), pages 271-286, 09.
  3. Bogart, William T. & Cromwell, Brian A., 1997. "How Much More is a Good School District Worth?," National Tax Journal, National Tax Association, vol. 50(2), pages 215-32, June.
  4. Sandra E. Black, 1997. "Do better schools matter? Parental valuation of elementary education," Research Paper 9729, Federal Reserve Bank of New York.
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Cited by:
  1. Nguyen-Hoang, Phuong & Yinger, John, 2011. "The capitalization of school quality into house values: A review," Journal of Housing Economics, Elsevier, vol. 20(1), pages 30-48, March.
  2. John Glen & Joseph G. Nellis, 2010. "“The Price You Pay”: The Impact of State-Funded Secondary School Performance on Residential Property Values in England," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 57(4), pages 405-428, December.
  3. Donald Vandegrift & Amanda Lockshiss & Michael Lahr, 2012. "Town versus Gown: The Effect of a College on Housing Prices and the Tax Base," Growth and Change, Gatton College of Business and Economics, University of Kentucky, vol. 43(2), pages 304-334, 06.
  4. Stephen Gibbons & Stephen Machin, 2008. "Valuing school quality, better transport, and lower crime: evidence from house prices," Oxford Review of Economic Policy, Oxford University Press, vol. 24(1), pages 99-119, spring.
  5. Stephen Machin, 2011. "Houses and schools: valuation of school quality through the housing market: EALE 2010 presidential address," LSE Research Online Documents on Economics 47495, London School of Economics and Political Science, LSE Library.
  6. Feng, Hao & Lu, Ming, 2013. "School quality and housing prices: Empirical evidence from a natural experiment in Shanghai, China," Journal of Housing Economics, Elsevier, vol. 22(4), pages 291-307.
  7. Machin, Stephen, 2011. "Houses and schools: Valuation of school quality through the housing market," Labour Economics, Elsevier, vol. 18(6), pages 723-729.
  8. Gibbons, Stephen & Machin, Stephen & Silva, Olmo, 2013. "Valuing school quality using boundary discontinuities," Journal of Urban Economics, Elsevier, vol. 75(C), pages 15-28.
  9. Scott A. Imberman & Michael F. Lovenheim, 2013. "Does the Market Value Value-Added? Evidence from Housing Prices After a Public Release of School and Teacher Value-Added," NBER Working Papers 19157, National Bureau of Economic Research, Inc.
  10. Christian A. L. Hilber, 2011. "The Economics Implications of House Price Capitalization A Survey of an Emerging Literature," SERC Discussion Papers 0091, Spatial Economics Research Centre, LSE.
  11. John Gibson & Geua Boe-Gibson, 2014. "Capitalizing Performance of 'Free' Schools and the Difficulty of Reforming School Attendance Boundaries," Working Papers in Economics 14/08, University of Waikato, Department of Economics.
  12. Stephen Machin, 2011. "Houses and Schools: Valuation of School Quality through then Housing Market - EALE 2010 Presidential Address," CEP Occasional Papers 29, Centre for Economic Performance, LSE.

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