Academic journal article Journal of Real Estate Literature

School Choice Programs: The Impacts on Housing Values

Academic journal article Journal of Real Estate Literature

School Choice Programs: The Impacts on Housing Values

Article excerpt

Many researchers have examined the relation between public school quality and residential home prices. They consistently find strong evidence that school quality is an important determinant of local housing prices, and families are willing to pay a significant premium for properties in superior school districts.

Surprisingly, relatively few researchers have examined the impact of school choice programs (such as voucher programs, charter schools, magnet schools, and interdistrict transfer programs) on home values. These non-assigned school choice programs evolved slowly at first, but over time they have come to include a substantial minority of school-aged children. According to the National Center for Education Statistics, by 2007, 27% of children were enrolled in a school other than an assigned school. An additional 3% of students were homeschooled. Among middle income and upper income families, the percentages attending non-assigned schools are even larger. More than 30% of the students above the poverty line attended non-assigned schools, and 38% of children whose parents earned graduate degrees attended non-assigned schools.1

The shortage of empirical studies on the impact of school choice on property values is partially due to the unavailability of data. As a relatively new phenomenon in the United States, researchers are constrained by the availability of data. In general, a choice program must exist before it can be empirically studied. Even as data become readily available, methodological challenges arise. For example, empirical techniques that were devised to examine price impacts near a school catchment boundary are of limited use in studying the impacts of schools that operate without catchment areas.

Theoretical finance has long recognized the value of options, and the application of these theories to the real estate context involves considerable ambiguity and challenges. School choice programs provide parents with an option. The empirical question is whether market participants are willing to pay a premium in locations that offer school choice programs. School choice programs should, in theory, unequivocally increase property values in participating locations. However, operationalizing this construct to residential properties brings significant complexities into play. For example, the presence of unconstrained school choice across a geographic catchment area boundary not only reduces the cost of proximity to a ''bad'' public school, but it also reduces the value of proximity to a ''good'' school (Reback, 2005). Despite these challenges, several recent empirical studies focus on the effect of school choice on residential property values, local economic growth, and family migration patterns.

In order to best understand the papers that address the impacts of school choice programs on housing values, one must first understand the basic mechanisms that connect property values to school quality in the standard assigned-school framework. Therefore, the remainder of this paper proceeds as follows. In the next section, we review the theoretical predictions of Tiebout (1956), the early tests of Tiebout sorting theory, and the computational general equilibrium models developed principally by Nechyba (1999, 2000, 2003). We survey several interesting empirical studies testing the effect of school choice programs on residential property values. We close with a summary of the analyses and concluding remarks.

THEORY

Almost 60 years ago, Charles Tiebout (1956) theorized that the local provision of public school services could result in spatial sorting of the population such that areas with high-quality schools would have higher home prices than those with poor educational services. Families would consider the level of school services and of local taxes, and then ''vote with their feet,'' choosing jurisdictions that best met their preferences. Families that placed a low value on good schools (perhaps because they were childless) would choose to live in low-tax jurisdictions with poorer-quality schools. …

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