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

Author

Listed:
  • 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.

Suggested Citation

  • Ian Davidoff & Andrew Leigh, 2007. "How Much Do Public Schools Really Cost? Estimating the Relationship Between House Prices and School Quality," CEPR Discussion Papers 558, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  • Handle: RePEc:auu:dpaper:558
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    File URL: https://www.cbe.anu.edu.au/researchpapers/cepr/DP558.pdf
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    References listed on IDEAS

    as
    1. Sandra E. Black, 1999. "Do Better Schools Matter? Parental Valuation of Elementary Education," The Quarterly Journal of Economics, Oxford University Press, vol. 114(2), pages 577-599.
    2. 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.
    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 215-232, June.
    4. 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, September.
    5. 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.
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    Citations

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    Cited by:

    1. Thompson, Paul N., 2016. "School district and housing price responses to fiscal stress labels: Evidence from Ohio," Journal of Urban Economics, Elsevier, vol. 94(C), pages 54-72.
    2. 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.
    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, Wiley Blackwell, vol. 43(2), pages 304-334, June.
    4. Haisken-DeNew, John & Hasan, Syed & Jha, Nikhil & Sinning, Mathias, 2018. "Unawareness and selective disclosure: The effect of school quality information on property prices," Journal of Economic Behavior & Organization, Elsevier, vol. 145(C), pages 449-464.
    5. Gibbons, Stephen & Machin, Stephen & Silva, Olmo, 2013. "Valuing school quality using boundary discontinuities," Journal of Urban Economics, Elsevier, vol. 75(C), pages 15-28.
    6. 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.
    7. 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.
    8. Machin, Stephen, 2011. "Houses and schools: Valuation of school quality through the housing market," Labour Economics, Elsevier, vol. 18(6), pages 723-729.
    9. repec:eee:regeco:v:64:y:2017:i:c:p:98-116 is not listed on IDEAS
    10. Imberman, Scott A. & Lovenheim, Michael F., 2016. "Does the market value value-added? Evidence from housing prices after a public release of school and teacher value-added," Journal of Urban Economics, Elsevier, vol. 91(C), pages 104-121.
    11. Christian A. L. Hilber, 2017. "The Economic Implications of House Price Capitalization: A Synthesis," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 45(2), pages 301-339, April.
    12. 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.
    13. Firpo, Sergio & Ponczek, Vladimir & Possebom, Vítor Augusto, 2014. "Private Education Market, Information on Test Scores and Tuition Practices," IZA Discussion Papers 8476, Institute for the Study of Labor (IZA).
    14. repec:ris:apltrx:0323 is not listed on IDEAS
    15. 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.
    16. 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.
    17. Stephen Gibbons & Stephen Machin & Olmo Silva, 2012. "Valuing School Quality Using Boundary Discontinuities," CEE Discussion Papers 0132, Centre for the Economics of Education, LSE.

    More about this item

    Keywords

    housing demand; school quality;

    JEL classification:

    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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