Capitalization of Parent, School, and Peer Group Components of School Quality into House Price
34 Pages Posted: 23 Feb 2001
Date Written: January 7, 2005
We test competing models of how K-12 public school quality is capitalized into house prices. The value added model proposes that only locationally fixed district-specific factors such as inputs to schooling and the characteristics of student peers are capitalized into house prices. This model claims that portable inputs to student outcomes, such as parental inputs, are not capitalized. A competing model argues that value added is not easily observed; rather, educational outcomes such as proficiency test scores and expenditures per pupil are easily observed and are capitalized into house prices. Based on our study of 123 school districts and 27,000 house transactions, we find no support for the value added model. Instead we find that the district's average proficiency test scores and real expenditures per pupil influence households' valuations of their local public schools.
Keywords: House price, hedonic model, capitalization, school quality, value added
JEL Classification: I2, N3, R21
Suggested Citation: Suggested Citation