What is the Connection Between Home Values and School Performance?

What is the Connection Between Home Values and School Performance?
Is there a real relationship between expensive houses and better public schools? A new report sheds light on the connection between property value and school quality.

Families often choose the location of their next home by where their children will go to school. As the focus on school performance has become more astute thanks to a rising emphasis on test scores and completion rates, home shoppers have become more cautious in their selections as well. Do schools directly affect home values in a neighborhood? The answer may depend on where you are shopping for your next home.

Home Values and School Spending

According to the National Bureau of Economic Research, there is a definite correlation between school expenditures and home values in any given neighborhood. A report titled, “Using Market Valuation to Assess Public School Spending,” found that for every dollar spent on public schools in a community, home values increased $20. These findings indicate that additional school expenditures may benefit everyone in the community, whether or not those residents actually have children in the local public school system.

This video outlines the correlation between good schools and home prices.

While the findings of this national study are compelling, they do not paint a full picture of the link between school spending and home values. According to the website, some school districts may operate more efficiently, so while expenditures are lower, the quality of education is still high. In addition, the size of the district or proximity of schools from neighboring districts could impact the perception of a specific school’s value, beyond the simple expenditure formula.

Researchers that published the report also found that wealthy school districts, where home values may tend to be higher, spend their funding more efficiently. The greatest spending was seen in school districts filled with low-income families, large districts and districts containing fewer homes – areas where home values may be lower overall. The results indicate that while home buyers may associate school quality with spending to some degree, this factor will not be the most significant one in influencing home values. Still, the trend has been noted on a national level, which offers some credibility to the association between the two.

New Ratings Impact Housing Prices

In 2010, the Wall Street Journal reported on a higher correlation between school performance and home values, which fluctuates somewhat in different states and school districts. According to the report, the increased availability of school data has led to more families searching for homes based on the quality of schools in the neighborhood than ever before. Today, a family in the market for a new home in a different location need only look as far as the Internet to find information on standardized test scores, completion rates, and student-teacher ratios to rank schools in the area where they are headed.

This video explains how owning a house close to schools has an impact on real estate values.

According to the Wall Street Journal, when the state of Florida rolled out its new grading system for all the schools in the state, home values were directly impacted by the new system. In fact, homes in neighborhoods with A-rated schools increased their value by as much as $10,000 over similar homes in the vicinity of a B-rated school. As the grading system continued over a number of years, that gap has widened. Now, home values could vary by anywhere from $50,000 to $300,000 a home, based on the current rating of the school in that neighborhood.

National Look at Home Values and Schools

A more recent study by the Brookings Institution found that housing costs tend to be higher in areas where high-scoring schools are located. The study, which looked at the 100 largest metro areas in the country, found an average difference of $205,000 in home prices between houses near high-performing and low-performing schools. Homes around high-performing schools also tended to be larger, with 1.5 more rooms than homes near low-performing institutions. In addition, the number of rentals in areas near high-performing schools is around 30 percent lower.

“We think of public education as being free, and we think of the main divide in education between public and private schools,” Jonathan Rothwell of the Brookings Institution was quoted as saying at the website for the National Association of Realtors. “But it turns out that it’s actually very expensive to enroll your children in a high-scoring public school.”

Good for Home Values, Hard for Relocating Families

While this news may be good for individuals concerned about the value of their current home, it can create challenges for families looking to relocate to a new neighborhood. The coveted school district in Chapel Hill, North Carolina, is filled with homes priced at the top of the housing market in the state, making for plenty of financial challenges for families that want their children to benefit from the top-rated schools in the area. Even families that can afford the higher home prices may find houses snatched up so fast, they have a hard time landing a contract on a home that meets their needs.

This video looks at the influence which schools have on house prices.

In addition, the differences in home prices may contribute to the educational disparities that occur between low- and middle to high-income students. Those who can afford to move to a higher quality school district often do, leaving those who cannot afford the same luxury stuck in subpar institutions. In addition, the difference in home values often leads to more segregated schools, which also lead to further disparities in education and subsequent income levels.

Still, the association between home values and quality education can be a boon to those living in a neighborhood with an in-demand public school. As data continues to be published about school performance nationwide, the expectation is that the trend with continue, and even increase, on a district, state and national level.

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