Which school attributes matter? The influence of school district performance and demographic composition on property values

Abstract

Increasing levels of segregation in American schools raises the question: do home buyers pay for test scores or demographic composition? This paper uses Connecticut panel data spanning eleven years from 1994 to 2004 to ascertain the relationship between property values and explanatory variables that include school district performance and demographic attributes, such as racial and ethnic composition of the student body. Town and census tract fixed effects are included to control for neighborhood unobservables. The effect of changes in school district attributes is also examined over a decade long time frame in order to focus on the effect of long run changes, which are more likely to be capitalized into prices. The study finds strong evidence that increases in percent Hispanic has a negative effect on housing prices in Connecticut, but mixed evidence concerning the impact of test scores on property values. Evidence is also found to suggest that student test scores have increased in importance for explaining housing prices in recent years while the importance of percent Hispanic has declined. Finally, the study finds that estimates of property tax capitalization increase substantially when the analysis focuses on long run changes.Journal of Economic Literature Classification: D1, D4, I2, R2, R5.

Willing to pay more for high-quality schools?

“…Sedgley, Williams, and Derrick (2008) presented consistent and strong evidence of the capitalization of test scores and demonstrated that properties within good school attendance zones were more expensive than those not situated in these areas. Using panel data of housing transactions in the state of Connecticut spanning eleven years, Clapp, Nanda, and Ross (2008) ascertained the relationship between property values and school attendance zone attributes and supported Black (1999)'s argument that failing to control for unobservable components of neighborhood quality would result in an overestimation of the test score's effect on residential property values.…”

“…The externality of prestigious schools has been found to be capitalized in housing prices (Black, 1999;Clapp, Nanda, & Ross, 2008).…”

The Vulnerability of Minority Homeowners in the Housing Boom and Bust

“…However, the repeat sales index yields quite similar estimates. 16 When a previous sale is not observed, we use the county assessment and adjust that value by the average ratio of sales price to assessed value for that county and quarter, see Clapp, Nanda and Ross (2008). In California, our refinance sample is restricted to mortgages where a previous purchase is observed because property assessments are uninformative as to the value of the underlying property.…”

A Hedonic Model of House Prices in the Greek Islands

“…The overall concept of capitalisation could be summarised that every attribute/characteristic of the market can be capitalised (Oates, 1969(Oates, , 1973Pollakowski, 1973;Abelson and Markandya, 1985;Reback, 2005;Clapp et al, 2008;Stadelmann, 2010).…”

“…There is a big number of very good and interesting researches studying the provision of adequate education in a school level (primary or high school level) to the residents of a housing market as well as the quality of this provision that influences the housing location choices, and therefore, the housing consumption patterns (Clapp et al, 2008;Reback, 2005;Bayer et al, 2007;Cheshire and Sheppard, 2004;Black, S.E., 1999;Gibbons et al, 2013).…”