Uncertain School Quality and House Prices: Theory and Empirical Evidence

Posted: 26 Aug 2018

See all articles by Geoffrey K. Turnbull

Geoffrey K. Turnbull

University of Central Florida

Velma Zahirovic-Herbert

University of Georgia

Minrong Zheng

University of Central Florida

Date Written: August 2018

Abstract

Observable measures of public school quality provide noisy signals of underlying quality to parents. Accordingly, this paper examines the house price effects of school quality and quality uncertainty. Residential bid rent theory under this type of uncertainty shows that greater school quality increases housing prices and steepens the gradient whereas quality risk decreases housing prices and flattens the gradient. The empirical models incorporate two sources of quality risk, the uncertainty over the quality of a given school and the uncertainty over which school a household will be assigned. Estimates reveal capitalization consistent with the theory. Including risk measures in the empirical model reduces quality level effects. All capitalization effects tend to be stronger in higher income neighborhoods. Further, attendance zone uncertainty exhibits more stable capitalization across subsamples than does uncertainty over the performance of a given school.

Keywords: School Quality, House Price, Uncertain School Quality, Capitalization

Suggested Citation

Turnbull, Geoffrey K. and Zahirovic-Herbert, Velma and Zheng, Minrong, Uncertain School Quality and House Prices: Theory and Empirical Evidence (August 2018). Journal of Real Estate Finance and Economics, Vol. 57, No. 2, 2018, Available at SSRN: https://ssrn.com/abstract=3232028

Geoffrey K. Turnbull

University of Central Florida ( email )

4000 Central Florida Blvd
Orlando, FL 32816-1400
United States

Velma Zahirovic-Herbert (Contact Author)

University of Georgia ( email )

Athens, GA 30602-6254
United States

Minrong Zheng

University of Central Florida ( email )

4000 Central Florida Blvd
Orlando, FL 32816-1400
United States

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