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Education Excellence Translates Into Real Estate Value

October 23, 2008 By John Fitzgerald, Education Policy Fellow

When times are tough and home values are dropping, it may seem counterintuitive to increase property taxes to support schools. But 42 Minnesota school districts are doing exactly that on Nov. 4 - arguing they need more money to increase the quality of their schools.

The school districts say they will invest the money in smaller class sizes, better technology and teaching materials, and more activities - all proven to increase student achievement. They say the investment will pay off for every homeowner in the district.

But does it? Does research show that a quality school district alone can raise home values? Real estate experts have their doubts. They say it is impossible to factor out all variables in determining a school district's effect on home values.

Several studies have tried.

One is "Schools and Housing Values"1 by G. Donald Jud and James M. Watts. The researchers examined data from more than 3,000 home sales in Charlotte, N.C., and found that the quality of public schools is an important determinant of residential property values.

"We estimate that per homeowner, an increase of one-half grade in student achievement levels would be worth $675 (based on 1977 values)."  In 1977, there were 72,177 parcels of residential property in Charlotte so that total property values in the city would be worth an additional $48 million for a one-half year improvement in school quality, they wrote.

To translate that to today, Robbinsdale Area Schools is asking voters to replace an $848 per pupil tax levy with a $1,360 per pupil levy, an increase of $512 per student or $180 per year for the owner of a $245,000 home. Using Jud and Watts' study, if Robbinsdale increased overall student performance by one-half grade level, the value of the average $245,000 home would increase by $2,309, or 9.4 percent. Robbinsdale schools serve 26,467 single family homes in Brooklyn Center, Brooklyn Park, Crystal, Golden Valley, New Hope, Plymouth and Robbinsdale. Those homes have a current value of $6.5 billion. A half-grade jump in educational quality would increase property values by an additional $61 million, far less than the $7.6 million the levy requests.

In "How Much More is a Good School Worth?"2 William T. Bogart and Brian A. Cromwell examined if a school's value can be determined by home sale prices in the district. To this end, they looked at about 2,500 homes sold in Cleveland between 1976 and 1994 that were in the same neighborhood but in different school districts.

After controlling for outside factors, they not only found that homes in good districts sell for more money, they found "that high-quality school districts provide services valued in excess of the higher taxes that they levy."

Sandra E. Black's "Do Better Schools Matter? Parental Valuation of Elementary Education,"3 examined home sales between 1993 and 1995 in three Boston suburban counties. By looking at neighborhoods where homes sit on an elementary school attendance boundary, she was able to factor out socio-economic  differences as well as differences in the physical makeup of the neighborhoods and the houses themselves.

"I find that higher elementary school test scores are associated with higher house prices; a 5 percent increase in test scores will lead to an increase in housing prices of approximately 2.1 percent, or $3,948 at a mean house price of $188,000," Black wrote.

Black's findings led her to surmise that even a small increase in Massachusetts' standardized test scores could lead to $70 million increase in the state's housing values.

These studies and others show that, while the stock market waxes and wanes, investing in public education is one of the soundest investments a community can make. Increasing student achievement is like putting money in the bank.

1 Jud, G. Donald, and James M. Watts. 1981. "Schools and Housing Values." Land Economics 57(3): 459-70.

2 Bogart, William T., and Brian A. Cromwell. 1997. "How Much More is a Good School Worth?" National Tax Journal 50(2): 215-32.

3 Black, Sandra E. 1999. "Do Better Schools Matter? Parental Valuation of Elementary Education." Quarterly Journal of Economics 114(2): 577-99.

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