Families often choose the location of their next home based on 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 by $20. These findings indicate that additional school expenditures may benefit everyone in the community, whether or not those residents 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 complete 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 district's size or proximity of schools from neighboring districts could impact the perception of a specific school’s value beyond the simple expenditure formula.
Researchers who published the report also found that wealthy school districts, where home values may tend to be higher, spend their funding more efficiently. The most significant 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 nationally, which offers credibility to the association between the two.
New Ratings Impact Housing Prices
In 2010, the Wall Street Journal reported a higher correlation between school performance and home values, fluctuating 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 where they are headed.
This video explains how owning a house near schools impacts 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. Homes in neighborhoods with A-rated schools increased their value by as much as $10,000 over similar homes near a B-rated school. As the grading system continued over several years, that gap 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 are 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 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 on the website for the National Association of Realtors. “But it turns out it’s actually very expensive to enroll your children in a high-scoring public school.”
Suitable 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 difficulty landing a contract on a home that meets their needs.
This video looks at the influence that schools have on house prices.
In addition, the differences in home prices may contribute to the educational disparities 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 usually leads to more segregated schools, leading 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 about school performance nationwide continues to be published, the expectation is that the trend will continue and even increase on a district, state, and national level.
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