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

Abstract

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.

How Do School District Boundary Changes and New School Proposals Affect Housing Prices

“…Bonilla-Mejía, Lopez, and Mcmillen (2018) take the reform of school lottery in Chicago to study the capitalization effect and find significant impact of higher admission probability associated with close proximity on housing prices. Collins and Kaplan (2017) utilize exogenous boundary changes in Shelby County, Tennessee to estimate the effects of school quality and district attributes on housing prices. They use repeated sales data and control for original school district fixed effects in a difference-in-differences framework.…”

“…Our approach most closely follows that of Bogart and Cromwell (2000), Ries and Somerville (2010) and Collins and Kaplan (2017) by taking advantage of a natural experiment -exogenous changes in school boundaries -with difference-in-difference estimation. In this way we avoid concerns about sorting along school boundaries (Bayer, Ferreira, and McMillan, 2007;Kane, Riegg, and Staiger, 2006).…”

“…As discussed in Section 2, there have been a few studies that consider how changes in district lines or catchment areas affect property values (Bogart and Cromwell, 2000;Collins and Kaplan, 2017;Ries and Somerville, 2010). The primary objective of these studies has been to identify the capitalization of different educational attributes and characteristics into property values.…”

The Time and Spatial Effects of A “City-County Merger” on Housing Prices—Evidence from Fuyang

“…However, Sah et al [70] found that traffic congestion, parking, and light pollution caused by schools have a negative impact on the nearby house prices after controlling for spatial autocorrelation problems. In order to better solve the endogenous problem, Collins and Kaplan [71] used Memphis city school and Shelby country school's consolidation as a natural experiment to re-estimate the impact of changes in education quality on housing prices. Through this, they found that the improvement of education quality had a significantly positive impact on housing prices.…”

“…Affected by the above measures, the new house prices cannot reflect the real price information, so it is more appropriate to study the second-hand house prices without price limit intervention. In addition, scholars also used the second-hand housing transaction price data for research, which provides a basis for this paper to use the second-hand housing data [66,71].…”