School Finance Reform and Housing Values: Evidence from the Los Angeles Metropolitan Area

Over the past 25 years California has transformed its system of public school finance from one of the least equitable in the nation to one of the most equitable. This paper examines the impact of that transformation on housing values. Specifically, we use data on residential housing sales from Los Angeles County for the years 1975, 1980, 1985, and 1990, to answer three fundamental questions related to the impact of school finance reform on housing values. First, were reform-induced changes in district resources capitalized into housing values? Second, did the equalization of resources across districts lead to a convergence in school district housing price premiums? Third, and perhaps most importantly, if so, was the convergence in school district housing price premiums the result of a leveling-up or a leveling-down of school district quality? Our results indicate that the answers to the first two questions are both yes – reform-induced changes in spending per pupil were capitalized into housing values and resource equalization has led to a convergence in housing values. Perhaps most importantly, however, our results indicate that the convergence in school district housing price premiums was the result of a leveling-down of school district quality.