Public School Reform, Expectations, and Capitalization: What Signals Quality to Homebuyers?

Abstract

This paper offers new evidence on how housing markets capitalize school quality information. We use school assessment measures and house transaction data from a single school district that is coterminous with a unified city‐county local government to examine the effects of two school assignment policy changes. The unusual school district‐city‐county government structure minimizes properly tax rate and public service variation across observations, reducing the source of one problem that plagues many capitalization studies. The school reassignment events reveal direct ties between school quality capitalization and households' expectations—the latter reflected in private school enrollment and tax referendum voting. Different school performance measures convey different information to home owners. In particular, student test scores do not affect house prices when broader school performance measures are published. Prices respond to measured school improvement, but improvements in a given school are more highly valued than being reassigned to a better school.

School quality as a catalyst for bidding wars and new housing development

“…The BDD approach also assumes that neighborhoods (houses) located near school attendance boundaries are similar to neighborhoods (houses) that are not located near a border. However, Zahirovic‐Herbert and Turnbull (2009) note that households living near a boundary may place a lower weight on across‐zone differences in school quality given their belief that the boundaries might change—as they frequently do in our study. Consequently, we provide estimates using the BDD approach as a robustness check in the Internet Appendix.…”

Governmental Restrictions and Real Estate Investor Risk Perception

“…Both studies find predominantly negative effects. Another set of studies supports that homeowners tend to vote in favor of safeguarding or increasing real estate values (Brunner et al, 2001 ; Brunner & Sonstelie, 2003 ; Dehring et al, 2008 ; Zahirovic-Herbert & Turnbull, 2009 ; Luo et al, 2021 ) find that building permits on US state-level are negatively associated with aggregate political uncertainty. Monfared and Pavlov ( 2019 ) study the impact of the Brexit referendum on residential real estate prices in areas of London and find that areas with a higher concentration of EU passport holders or highly educated residents experienced a disproportionately large price decline following the vote.…”