How schools impact real estate prices in the neighbourhoods

There is no denying that the quality of nearby schools can impact the price of a home. But while this fact has always been somewhat of a given in the real estate industry, recent statistics now demonstrate just how much of an impact school quality has on real estate. Moving for schools is a common practice for house hunters throughout the world, sometimes even for home buyers without kids. Many home buyers are willing to pay more for good schools and are even willing to trade bigger and better homes for access to quality school systems. Twenty-nine percent of the buyers listed schools quality as a deciding factor in their decision. The influence of school quality on house prices also feeds back into school admissions. Faced with strong evidence on house price effects and in an effort to give poorer children the opportunity to enroll in high performing schools, recent policy has tried to loosen the link between where children live and the schools they attend. The link between schools and house prices also sheds light on the general shortage of what parents perceive as high quality schools, influencing the policy measures to extend competition, choice and the quality and diversity in provision through the academy and “free school” programmed.

Spending on housing is spending on a bundle of goods: structural quality, access to transport, green space, shops, safety from crime, views, environment and so on, alongside school quality. The market price of a house therefore reflects the availability of these attributes and amenities, and buyers’ willingness to give up other forms of consumption to pay for them. Some buyers will actually come to these areas with the specific intention to buy a home there specifically for the excellent school systems. However, there are other kinds of buyers out there that consider schools as part of an overall equation in determining the desirability of a property. Real estate investors buy homes for very different reasons than the average nuclear family – yet they are coming to a similar conclusion on the desirability of homes located near good schools. This is a perfect example of how schools can impact buying decisions.

When discussing why good schools do what they do to property values, it is easy to get into a “chicken and egg” dilemma. On the one hand, it is possible to argue that good schools are responsible for increased property values. After all, we just discussed multiple reasons why buyers will seek out homes located in good school districts and pay a premium for them. The conclusion that good schools drive up prices is an obvious one. The basic procedure is to take the price of a house and its associated local school quality, and compare them with the prices of similar neighboring houses that offer access to a different set of schools. The assumption here is that the close neighbors provide a set of almost identical “twins” with which comparisons can be made.

Advertisements