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The Effect of Housing Wealth on College Choice: Evidence from the Housing Boom

  • Michael F. Lovenheim
  • C. Lockwood Reynolds

The higher education system in the United States is characterized by a large degree of quality heterogeneity, and there is a growing literature suggesting students attending higher quality universities have better educational and labor market outcomes. In this paper, we use NLSY97 data combined with the difference in the timing and strength of the housing boom across cities to examine how short-run home price growth affects the quality of postsecondary schools chosen by students. Our findings indicate a $10,000 increase in a family's housing wealth in the four years prior to a student becoming of college-age increases the likelihood she attends a flagship public university relative to a non-flagship public university by 2.0 percent and decreases the relative probability of attending a community college by 1.6 percent. These effects are driven by relatively lower and middle-income families. We show that these changes are due to the effect of housing wealth on where students apply, not on whether they are admitted. We also find that short-run increases in home prices lead to increases in direct quality measures of the institutions students attend. Finally, for the lower-income sample, we find home price increases reduce student labor supply and that each $10,000 increase in home prices is associated with a 1.8% increase in the likelihood of completing college.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18075.

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Date of creation: May 2012
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Publication status: published as Michael F. Lovenheim & C. Lockwood Reynolds, 2013. "The Effect of Housing Wealth on College Choice: Evidence from the Housing Boom," Journal of Human Resources, University of Wisconsin Press, vol. 48(1), pages 1-35.
Handle: RePEc:nbr:nberwo:18075
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  1. Stacy Berg Dale & Alan B. Krueger, 2002. "Estimating The Payoff To Attending A More Selective College: An Application Of Selection On Observables And Unobservables," The Quarterly Journal of Economics, MIT Press, vol. 117(4), pages 1491-1527, November.
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  4. Christopher Avery & Caroline M. Hoxby, 2003. "Do and Should Financial Aid Packages Affect Students' College Choices?," NBER Working Papers 9482, National Bureau of Economic Research, Inc.
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  7. John Bound & Michael F. Lovenheim & Sarah Turner, 2010. "Why Have College Completion Rates Declined? An Analysis of Changing Student Preparation and Collegiate Resources," American Economic Journal: Applied Economics, American Economic Association, vol. 2(3), pages 129-57, July.
  8. Michael F. Lovenheim & C. Lockwood Reynolds, 2011. "Changes in Postsecondary Choices by Ability and Income: Evidence from the National Longitudinal Surveys of Youth," Journal of Human Capital, University of Chicago Press, vol. 5(1), pages 70 - 109.
  9. Philippe Belley & Lance Lochner, 2007. "The Changing Role of Family Income and Ability in Determining Educational Achievement," Working Papers 2011-037, Human Capital and Economic Opportunity Working Group.
  10. Dan A. Black & Jeffrey A. Smith, 2006. "Estimating the Returns to College Quality with Multiple Proxies for Quality," Journal of Labor Economics, University of Chicago Press, vol. 24(3), pages 701-728, July.
  11. Kane, Thomas J & Rouse, Cecilia Elena, 1995. "Labor-Market Returns to Two- and Four-Year College," American Economic Review, American Economic Association, vol. 85(3), pages 600-614, June.
  12. Philip S. Babcock & Mindy Marks, 2010. "The Falling Time Cost of College: Evidence from Half a Century of Time Use Data," NBER Working Papers 15954, National Bureau of Economic Research, Inc.
  13. Rodney J. Andrews & Jing Li & Michael F. Lovenheim, 2012. "Quantile Treatment Effects of College Quality on Earnings: Evidence from Administrative Data in Texas," NBER Working Papers 18068, National Bureau of Economic Research, Inc.
  14. Terry Long, B.Bridget, 2004. "How have college decisions changed over time? An application of the conditional logistic choice model," Journal of Econometrics, Elsevier, vol. 121(1-2), pages 271-296.
  15. Stephen V. Cameron & Christopher Taber, 2004. "Estimation of Educational Borrowing Constraints Using Returns to Schooling," Journal of Political Economy, University of Chicago Press, vol. 112(1), pages 132-182, February.
  16. Atif Mian & Amir Sufi, 2009. "The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage Default Crisis," The Quarterly Journal of Economics, MIT Press, vol. 124(4), pages 1449-1496, November.
  17. Dominic J. Brewer & Eric Eide & Ronald G. Ehrenberg, 1996. "Does It Pay To Attend An Elite Private College? Cross Cohort Evidence on the Effects of College Quality on Earnings," NBER Working Papers 5613, National Bureau of Economic Research, Inc.
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