Are All Homeowners Willing to Pay for Better Schools? – Evidence From a Finite Mixture Model Approach
The Journal of Real Estate Finance and Economics, May 2019, Volume 58, Issue 4, pp 638–655
Posted: 24 Aug 2019
Date Written: May 22, 2019
School quality indicators such as student test scores have been shown to be capitalized into the value of local homes. The presence of households with different preferences for education implies that the implicit price of improvements in school quality might vary even within a region. In this paper, we employ a finite mixture (FMM) to capture unobserved heterogeneity in household preferences. Using school quality and residential property sales data from Pitt County, North Carolina, we find evidence of two subpopulations of houses, where the prices for one group are virtually invariant to school quality. Consistent with recent research by Davis et al. (2017) these results indicate that heterogeneous valuation of educational quality by households with different socio-economic backgrounds should be taken into consideration when devising policies targeted at the local level.
Keywords: Home price premium; Heterogeneity; Finite mixture model; School quality
JEL Classification: D12; I25; L10;R21
Suggested Citation: Suggested Citation