Capitalization Of School Quality Research Articles

Housing market and school choice response to school quality information shocks✰

This paper investigates market response to a nationwide school quality information disclosure regime. Exploiting quasi-exogenous timing of the release of information through the school year, I uncover a number of novel empirical findings. First, investigating the house price margin, the results reveal a strikingly convex hedonic price function: large effects to school quality ratings for homes located near schools serving advantaged students but little impact in poorer neighborhoods. These heterogeneous effects can help reconcile relatively modest overall mean school quality capitalization effects with, for example, the large fees wealthier families typically pay for private schools. Furthermore, the results demonstrate that the impact of credible and low frequency school quality information shocks persists through the medium term. Finally, exploring the impact of the same information intervention on the school choice margin demonstrates that uprated schools serving advantaged students experience dramatic increases in demand from local families, however response for schools serving less advantaged families is more muted.

The Valuation of Local School Quality under School Choice

School choice programs break the link between residential location and school attendance, and should weaken the capitalization of school quality into house prices. For the first time, I quantify the effect of one such program—charter school expansions—across several states using a dataset covering charter entries and house prices. I embed an event study of charter entry into a boundary discontinuity design and find that, on average, school choice decreases the valuation of traditional schools by four percentage points. Suggestive evidence shows school choice can lead to neighborhood change through resorting as school boundaries become less important. (JEL H75, I21, I24, I28, R23, R31)

The Capitalization of School Quality in Rents in the Beijing Housing Market: A Propensity Score Matching Method

In China, the capitalization of education resources in housing prices has been widely discussed. However, insufficient attention is paid to it in rents. Thus, this paper mainly aims to identify the capitalization of school quality in rents. It estimates a hedonic treatment effects model by introducing the propensity score matching (PSM) method. The empirical analysis is based on 49,438 rental transaction data of 2016–2018 in Beijing, China. It finds that school quality can be significantly capitalized in rents across different school quality (ranked as 1st-class, 2nd-class, and popular-class), space, and time. Besides, quality school density (the number of quality schools) within neighborhoods can significantly moderate the nearest school’s capitalization, promoting a 3.5% capitalization increase in outer municipal districts but a 3% decrease in inner districts. The popular-class schools can be capitalized into the rent of inner districts, probably because of other exogenous factors (e.g., housing prices, public transit). In addition, the equitable housing policy might show a potential risk in worsening social inequality between homeowners and renters in the municipal areas with high competition for 1st-class schools. In contrast, it may remedy such inequality in outer districts with less competition for quality schools.

The Lingering Effects of Court-Ordered Busing on School Quality Capitalization

Previous research shows that court-ordered busing to desegregate public schools dampens housing market capitalization of school quality even after the court order is lifted. This paper considers how long this effect lasts. The meta-analysis of 50 school quality capitalization studies finds that, while the effect of previous busing on capitalization fades over time, it does so slowly, with significant negative net effects persisting for about 5.5 years.

Homeowner and Renter Payment for School Quality in Beijing: Boundary Fixed Effect Analysis with Housing Price–Rent Comparison

The commonly used traditional hedonic price model is likely to be biased in exploring residents' willingness to pay for school quality because of unobservable characteristics. To circumvent this issue, using city-level and district-level key primary school attendance zones data and average home value data of communities in Beijing in December 2016, we employ paired difference regression using a boundary fixed effect approach to explore the capitalization of school quality, with 750 m as the threshold distance within community pairs and 500 and 1,000 m for robustness checks. The results indicate that housing prices respond significantly to both city-level and district-level school qualities in Beijing, with premiums of 17.2% and 8.37%, respectively. However, we find no premium for housing rent. Homeowners show concern over good school quality and are willing to pay more for higher school quality, while renters will not pay for it. This study further suggests that the traditional hedonic price model has overestimated the capitalization of school quality in housing. The estimation results from the boundary fixed effect approach are more robust and reliable. Based on these findings, urban policy recommendations and action plans are proposed.

The Relationship Between School Quality and U.S. Multi-family Housing Rents

Drawing on a sample, of U.S. multi-family apartment and school data from across 45 U.S. Core Based Statistical Areas, this paper examines the capitalization of school quality into apartment rents. It makes three contributions. First, in the context of the geographically diverse data, results tend to be consistent with individual market analyses in the extant literature though there is some important geographic variation. Second, capitalization patterns vary across measures of school quality and tend to consistent with observed patterns within the single-family oriented research including by region. Third, congruent with life cycle literature, multi-family renters appear, on average, to capitalize primary school quality to a greater extent than intermediate and secondary school levels. Results are robust when considering school choice and other inter-jurisdictional nuances or econometric techniques.

Desegregation Litigation and School Quality Capitalization

Previous research focuses on how sample characteristics and research methods affect school quality capitalization estimates. This paper instead examines how the institutional environments of each market affect capitalization, specifically, desegregation litigation and forced busing. The meta-analysis shows that previous desegregation litigation and forced busing are associated with significantly weaker school quality capitalization. The capitalization literature reports a wide range of estimates, so it is not surprising that the range of effects of prior litigation and forced busing on the market valuation of a one standard deviation in school quality fall between $80–$2000 and $130–$3250, respectively, for the studies examined.

A Meta‐Analysis of School Quality Capitalization in U.S. House Prices

AbstractSchool quality capitalization studies report widely mixed results. This article conducts meta‐analysis to identify the data characteristics and research methods that explain this variation. The way the school quality is measured matters but no single measure clearly dominates. Both boundary and neighborhood fixed effects significantly control for the influence of neighborhood amenities. Increasing the number of quality variables reduces the capitalization significance of each. Regional differences also appear to matter; studies using data drawn from the South exhibit weaker capitalization. Also, it is surprising that econometric methods do not appear to be driving results.

Hedonic analysis and time‐varying capitalization: An application using school quality

AbstractThis paper investigates the dynamics of school quality capitalization during the boom–bust cycle of the housing market. We find that the housing downturn led to a sharp increase in capitalization for high‐quality schools, whereas the boom and recovery periods saw a decline in valuation for top schools. Hence, the capitalization of school quality exhibits a strong countercyclical trend with the overall housing market. We test whether our findings are driven by households “trading down” from private schools during downturns or the fact that the housing supply responds asymmetrically during the boom and bust, but we find little support for these propositions.

The impact of uncertainty on school quality capitalization using the border method

Hedonic valuation methods are commonly used to measure school quality capitalization to assess the value of school reforms and gain insight into how households choose schools and neighborhoods. These methods rely on observed school quality as a proxy for future school quality, but often ignore the potential for changes in people's expectations of future school quality. In particular, the border method is commonly used to measure school quality capitalization, as it differences out unobserved neighborhood characteristics that may be spatially correlated with school quality. However, it may produce estimates that are biased downwards since it relies on home sales near school borders, where residents' expectations of future school assignment may be different from contemporary expected school quality in the interior. I use 22,604 homes sales in DeKalb County, Georgia that occurred between 2003 and 2012 to investigate if information about potential school reassignment biases border method estimates downward. During this time, the school system sent differential signals to residents regarding their future school quality by announcing potential areas for reassignment long before the approval of final plans. Exploiting the variation between certain and uncertain borders, I find evidence that school assignment uncertainty reduces capitalization of school quality. The results provide evidence that residents' expectations of future school assignment are important factors contributing to the degree of school quality capitalization and suggest that future research should consider factors that influence people's expectations of school quality.

Best Education Money Can Buy? Capitalization of School Quality in Finland

By international comparison, Finnish pupil achievement is high and school achievement differences small. The Finnish education system is unusual also because there are no national testing programmes, and information on school quality measures is not publicly disclosed. Is school quality capitalized into house prices in this environment? Using a boundary discontinuity research design and data from Helsinki, we find that it is: 1 standard deviation increase in average test scores increases prices on average by 3%, which is comparable to findings from the UK and the USA. We argue that this surprisingly large effect is at least partly explained by the inelasticity of housing supply, as we use data from a densely populated urban area. We also show that the effect depends on local land supply conditions within the city and is highest in areas with inelastic supply. Furthermore, the price premium seems to be related to pupils’ socio-economic background rather than school effectiveness.

The Capitalization of School Quality into Renter and Owner Housing

AbstractResidential property amenities including school quality should be capitalized into both rent and property sale prices. Evidence of price and rent premiums for higher school quality is provided. The price premium for school quality for owners exceeds the premium for renters. The premiums paid by renters and owners vary with the likelihood the household directly uses school services, housing market conditions, whether the property is in an urban or suburban area and by the observed school quality in the years leading to the transaction. The larger price premium paid by owners is supported by enhanced liquidity and tempered price volatility for properties located in quality school districts.

Capitalization of School Quality in Housing Prices: Evidence from Boundary Changes in Shelby County, Tennessee

In 2013 Memphis City Schools and Shelby County Schools consolidated into a unified system, creating one of the largest districts in the nation. Six Memphis suburbs subsequently voted to create separate municipal districts. Many school zoning changes resulted from the merger and subsequent splintering of districts, providing a rare opportunity to separately identify the value of both school and district quality as they are capitalized in housing prices. Utilizing school fixed effects and repeat sales data, we find that a one standard deviation increase in test scores increases prices by 3-4% while district administration accounts for 5-8% of home values.

Public School Quality Valuation Over the Business Cycle

Over the years 2000 to 2013, the Los Angeles real estate market featured a boom, a bust, and then another boom. We use this variation to test how the hedonic valuation of school quality varies over the business cycle. Following Black (1999), we exploit a regression discontinuity design at elementary school attendance boundaries to test for how the implicit price of school quality changes. We find that the capitalization of school quality is counter-cyclical. While good schools always command a price premium, this premium grows during the bust. Possible mechanisms for these findings include consumers trading down from private to public schools during contractions as well as the effects of reduced household mobility during downturns in raising the value of the public school option.

Capitalization of secondary school education into property values: A case study in Hong Kong

Investment in quality education in the neighbourhood would be supported by the people as it is often cited as an important attribute that distinguishes a community. A good quality school-network thus can be viewed as a positive amenity that is capitalized into residential property values. The study employs two hedonic models based on two large samples in order to explore the intuition that quality-school environment is capitalized into house prices. Results suggest that there is a significant effect of school-quality on house price. Potential buyers are ready to pay a large premium ranging from 27% to 39% for housing units in the top-tier school-networks. Results further reveal that the extent of capitalization of school quality into house price varies across locations. Results also suggest that property buyers rank variables such as quality school-network higher than such profile issues as age, floor level, and accessibility to transport and shopping. The findings imply that investment in quality education in the neighbourhood enhances the house property value significantly; and well-known elite schools add value to properties and increases in property price. These findings shed light on the market's ability to capitalize quality-school environment into property value though the extent of capitalization may vary across locations.

Capitalization of school quality into housing prices: Evidence from Boston Public School district walk zones

Using Boston Public School District’s unique walk zone feature to better account for unobservables, I estimate a significant positive effect of school quality on house sale prices. This effect increases for homes more likely to be bought by families with children and diminishes in areas with already oversubscribed schools.

Can improvements in schools spur neighborhood revitalization? Evidence from building investments

For most households in the U.S. the public school to which they send their children is tied to the geographic location of their home. Economic theory predicts that households take into account the quality of the public school when making residential decisions. A large body of literature has documented that school quality alters the demand for housing in a neighborhood as measured by the capitalization of school quality into house prices. Demand for schools may also affect the quality of the housing stock by creating incentives for property owners to better maintain their buildings and units. Exploration of this potential relationship has been absent from the discussion on how schools influence communities. I attempt to fill this gap through investigating the relationship between school quality and capital investments in the housing stock. To investigate whether a relationship exists between schools and property owner capital investment activity, I rely on detailed building level investment data in New York City as well as measures of school performance. I explore whether consistent measures of school performance are associated with higher levels of investment activity. To identify whether this relationship is causal, that good schools can spur investment activity, I incorporate a boundary discontinuity identification strategy. Further, I test whether households respond to changes in school performance, exploring whether improvements in test scores over a five-year period are associated with higher levels of residential investments. Finally, I control for differences in populations across attendance zone boundaries through incorporating information on the composition of students at each school. My results suggest a significant relationship between performance in math and English Language Arts and property owner capital investment behavior. In my preferred specification, I estimate that a one standard deviation improvement in test scores is associated with a 2.5 percent increase in dollars invested in a building.

Do choice schools break the link between public schools and property values? Evidence from house prices in New York City

While school choice has attracted much attention from policymakers and researchers, virtually all of the research has focused on the relationship between school choice and student academic performance. There is, in contrast, little work examining whether additional choice schools weaken the link between residential property values and locally zoned schools — despite the well accepted theoretical (and empirical) link between schools and housing. As school choice becomes more important in reforming urban school systems, and improving public schools is critical for attracting and retaining middle class families in urban neighborhoods, it is important to understand how increasing school choice shapes the long-term economic health and viability of the country's central cities. In this paper, we examine how choice schools affect house prices, particularly the link between the quality of locally zoned schools and surrounding housing values. Our study utilizes rich data on New York City public elementary schools geo-coded and matched to data on property sales for a fifteen-year period beginning in 1988. To identify the impact of a choice school on the capitalization of school quality into housing values first we incorporate a boundary discontinuity approach to compare the capitalization of zoned school quality into housing prices of buildings that are close to one another but in different elementary school attendance zones. We rely on smaller and smaller distances from the boundary to test the stability of our results. Second, we compare housing units that are within 3000ft of a choice school to housing units outside of these rings, which is traditionally considered the ‘walk zone’ around a school. Third, we take advantage of choice school openings to look at the capitalization rates before and after the choice school opens. We find that the proximity of alternative school choices does weaken the link between zoned schools and property values. The opening of a choice school reduces the capitalization of test scores from zoned schools into housing values by approximately one third.

LAND SUPPLY AND CAPITALIZATION OF PUBLIC GOODS IN HOUSING PRICES: EVIDENCE FROM BEIJING

ABSTRACTThis paper studies the extent to which spatial heterogeneity in housing prices is affected by housing supply in Beijing's specific context of centralized metropolitan government without local property tax. Taking data sets of residential land leases and private housing sales records from 2006 to 2008 within Beijing's metropolitan area, this paper examines how the capitalization of school quality and subway accessibility in housing prices varies with land availability instrumented by the employment density of state‐owned enterprises (SOEs) at the beginning of SOE reform. Results confirm that the capitalization of school quality and subway accessibility is larger in supply‐constrained locations.

SCHOOL QUALITY AND INFORMATION DISCLOSURE: EVIDENCE FROM THE HOUSING MARKET

In this article, we investigate the relationship between school quality and information disclosure in housing markets. When presented with the option of identifying their local public school in a real estate listing, we find that sellers with homes assigned to higher‐performing schools are more likely to provide this information. We find more evidence of selective disclosure in 2001–2002 than in 2006–2007, when the costs of gathering and disclosing information on school assignments and quality were lower. Furthermore, we find more evidence of strategic behavior among sellers of large single‐family units that presumably appeal to families with children. After controlling for school quality, information disclosure does not appear to affect housing prices. Taken together, our results support the findings of the education literature on the importance of school quality capitalization in residential real estate and they provide the first evidence of strategic information disclosure in housing markets. (JEL L15, I20, R31)