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The effect of educational test scores on house prices in a model with spatial dependence

  • Sedgley, Norman H.
  • Williams, Nancy A.
  • Derrick, Frederick W.
Registered author(s):

    The hedonic modeling literature is rich with analyses of the importance of public school quality on real estate markets. In this paper, spatial dependency is incorporated in a hedonic model based on housing, neighborhood, demographic, and school quality attributes readily available on the Internet for home sales in Howard County, Maryland. The importance of using readily available measures is that perceptions in the public are formed by them. The study also addresses potential omitted variable bias by incorporating school assessment measures over the K-12 grade range. The consideration of spatial dependency in hedonic models is imperative since the findings are sensitive to appropriately modeling the spatial component of home prices. The results indicate that there is consistent and significant evidence of the capitalization of 8th grade test scores and SAT scores in home prices, and inconsistent evidence of the capitalization of 3rd grade test scores. The elasticities of house price with respect to test scores are all in the inelastic range and smaller than those found in other studies. This study provides clear guidance on how to test for spatial heterogeneity and non-normality of error terms before proceeding with hedonic analysis.

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    Article provided by Elsevier in its journal Journal of Housing Economics.

    Volume (Year): 17 (2008)
    Issue (Month): 2 (June)
    Pages: 191-200

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    Handle: RePEc:eee:jhouse:v:17:y:2008:i:2:p:191-200
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622881

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    2. G. Donald Jud & James M. Watts, 1981. "Schools and Housing Values," Land Economics, University of Wisconsin Press, vol. 57(3), pages 459-470.
    3. Robert W. Paterson & Kevin J. Boyle, 2002. "Out of Sight, Out of Mind? Using GIS to Incorporate Visibility in Hedonic Property Value Models," Land Economics, University of Wisconsin Press, vol. 78(3), pages 417-425.
    4. Won Kim, Chong & Phipps, Tim T. & Anselin, Luc, 2003. "Measuring the benefits of air quality improvement: a spatial hedonic approach," Journal of Environmental Economics and Management, Elsevier, vol. 45(1), pages 24-39, January.
    5. David M. Brasington, 1999. "Which Measures of School Quality Does the Housing Market Value?," Journal of Real Estate Research, American Real Estate Society, vol. 18(3), pages 395-414.
    6. Allen Lynch & David Rasmussen, 2001. "Measuring the impact of crime on house prices," Applied Economics, Taylor & Francis Journals, vol. 33(15), pages 1981-1989.
    7. Weimer, David L. & Wolkoff, Michael J., 2001. "School Performance and Housing Values: Using Non-Contiguous District and Incorporation Boundaries to Identify School Effects," National Tax Journal, National Tax Association, vol. 54(n. 2), pages 231-54, June.
    8. Phil Graves & James C. Murdoch & Mark A. Thayer & Don Waldman, 1988. "The Robustness of Hedonic Price Estimation: Urban Air Quality," Land Economics, University of Wisconsin Press, vol. 64(3), pages 220-233.
    9. 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.
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    12. 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.
    13. David M. Brasington, . "House Prices and the Structure of Local Government: An Application of Spatial Statistics," Departmental Working Papers 2002-17, Department of Economics, Louisiana State University.
    14. Brasington, David M. & Hite, Diane, 2005. "Demand for environmental quality: a spatial hedonic analysis," Regional Science and Urban Economics, Elsevier, vol. 35(1), pages 57-82, January.
    15. Goodman, Allen C. & Thibodeau, Thomas G., 1998. "Housing Market Segmentation," Journal of Housing Economics, Elsevier, vol. 7(2), pages 121-143, June.
    16. Harrison, David Jr. & Rubinfeld, Daniel L., 1978. "Hedonic housing prices and the demand for clean air," Journal of Environmental Economics and Management, Elsevier, vol. 5(1), pages 81-102, March.
    17. Kathleen P. Bell & Nancy E. Bockstael, 2000. "Applying the Generalized-Moments Estimation Approach to Spatial Problems Involving Microlevel Data," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 72-82, February.
    18. Mingche M. Li & H. James Brown, 1980. "Micro-Neighborhood Externalities and Hedonic Housing Prices," Land Economics, University of Wisconsin Press, vol. 56(2), pages 125-141.
    19. Haurin, Donald R. & Brasington, David, 1996. "School Quality and Real House Prices: Inter- and Intrametropolitan Effects," Journal of Housing Economics, Elsevier, vol. 5(4), pages 351-368, December.
    20. Francois Des Rosiers & Marius Theriault, 1996. "Rental Amenities and the Stability of Hedonic Prices: A Comparative Analysis of Five Market Segments," Journal of Real Estate Research, American Real Estate Society, vol. 12(1), pages 17-36.
    21. Kathy J. Hayes & Lori L. Taylor, 1996. "Neighborhood school characteristics: what signals quality to homebuyers?," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q IV, pages 2-9.
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