Housing Disease and Public School Finances

Abstract

Median expenditure per student in U.S. public schools grew 41% in real terms from 1990 to 2009. We propose a new mechanism to explain part of this increase: housing disease, a fiscal externality from local housing markets in which unexpected booms generate extra revenues that schools administrators have incentives to spend, independent of local preferences for provision of public goods. We establish the importance of housing disease by: (i) assembling a novel microdata set containing the universe of housing transactions for a large sample of school districts; and (ii) using the timelines of school district housing booms to disentangle the effects of housing disease from reverse causality and changes in household composition. We estimate housing price elasticities of per-pupil expenditures of 0.16-0.20, which accounts for approximately half of the rise in public school spending. School districts did not boost administrative costs with those additional funds. Instead, they primarily increased spending on instruction and capital projects, suggesting that the cost increase was accompanied by improvements in the quality of school inputs.

How Local Economic Conditions Affect School Finances, Teacher Quality, and Student Achievement: Evidence from the Texas Shale Boom

“…See http://misdtx.schoolwires.com/cms/lib/TX21000394/Centricity/Domain/917/AbtBud13.pdf.16 Davis and Ferreira (2017), in an analysis of housing price increases, also documented that much of the additional spending available to schools went to capital projects. In their case, however, this was paired with an increase in spending on instruction.…”

Housing booms and local spending

“…There are also several studies that examine the effect of the last housing boom on local public finances in the U.S.: Vlaicu and Whalley (2011), Alm et al (2011), Lutz et al (2011) and Ihlanfeldt and Doerner (2011). The paper most similar to ours is the one by Davis and Ferreira (2018). The authors leverage variation from the trend break in housing prices across U.S. metro areas during the boom (see also Ferreira and Gyourko, 2018) to study the effect of increases in property tax collections on school spending.…”