Valuing School Quality Via School Choice Reform

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means without the prior permission in writing of the publisher nor be issued to the public or circulated in any form other than that in which it is published. A lot of existing research documents a sizable and significant correlation between house prices and school quality. This has led some commentators to express concerns about 'school selection by mortgage' and to policy concerns about whether the presence of such correlations implies a need for school admissions reform. However, an ongoing issue in this literature concerns the means by which the impact of school quality on housing valuations is identified. This is pertinent since the main empirical challenge is to ensure that results capture only the portion of housing expenditures affected by variations in school quality, and not due to other (observed and unobserved) housing characteristics or local amenities. In this paper we adopt a different approach to much of the literature so as to identify the impact of school quality on house prices. We implement a research design based on a school admissions reform. The reform increased pupil choice to high schools by allowing mobility across catchment area boundaries that was not permitted before. We use this variation to empirically identify the relationship between house prices and school performance. We study a change in school choice that took place in Oslo county in Norway in 1997, where the school authorities opened up the possibility for every pupil to apply to any high school. Prior to this, rigid catchment areas were present and children had to attend schools in the area in which they resided. Thus to identify school quality capitalization we are able to exploit both a time-series variation (through the school choice experiment) as well as cross-sectional variation using neighbourhood discontinuities generated by the catchment area approach that has been more commonly used in the recent literature. Our estimates show that parents do indeed substantially value better performing schools. They also show that school choice matters. When proximity to high school is the criterion for admission, parents are prepared to pay significant amounts of money to live in the catchment area of schools they prefer. However, once the reform occurred and the residence based zoning criterion for admission was removed, the house price-school performance relation …