The Effects of Housing Price Declines on Children's Educational Outcomes

We examine the effects that household exposure to housing price declines, captured by measures of negative equity, have on children's academic performance, using data on public school students and housing transactions from the State of Florida. Our empirical strategy exploits variation over time in the timing of family moves to account for household sorting into neighborhoods and schools and selection into initial mortgage terms. In contrast to the existing literature on the effects of foreclosure, we find that students with the highest risk of negative equity exhibit significantly higher test score growth, with the largest effects among Black students and students qualifying for free or reduced-priced lunch. We find evidence supporting two underlying mechanisms: (1) families in negative equity may reduce the impact of income losses on consumption by forgoing mortgage payments, and (2) families exposed to high levels of negative equity may move to schools that received higher average school report card grades. While negative equity and foreclosure are undesirable, negative equity may have encouraged homeowners to forgo mortgage payments to mitigate the impact of the Great Recession, and temporarily reduced the housing market barriers low-income households faced in accessing educational opportunities.