The Effect of Housing Wealth on College Choice - Evidence from the Housing Boom

The higher education system in the United States is characterized by a large degree of quality heterogeneity, and there is a growing literature suggesting students attending higher quality universities have better educational and labor market outcomes. In this paper, we use the difference in the timing and strength of the housing boom across cities to examine whether recent high school graduates whose parents experienced a short-run increase in their home price were more likely to attend a higher-quality college or university. We employ restricted-use NLSY97 data containing information on post-secondary institutions attended and MSA in which respondents lived in 1997 as well as detailed demographic information and AFQT scores that allow us to control for virtually all of the confounding relationships between housing price growth and college attendance decisions that do not operate through the wealth afforded by increased home values. Our findings indicate a $10,000 increase in a family’s housing wealth in the four years prior to a student becoming of college-age increases the likelihood he attends a flagship public university relative to a non-flagship public university by 0.2 percentage points and decreases the relative probability of attending a community college by 0.6 percentage points. There is no effect of home price growth on selection into private universities, however. By splitting our sample into different income groups, we show these effects are driven by relatively low-income families. We also estimate the effect of home price growth on the resource measures students are exposed to in college; short-run increases in home prices lead to substantial increases in the SAT scores, faculty-student ratios, institutional graduation rates, and per-student expenditures of the institutions students attend. For the lower-income sample, home price increases also are associated with an increased likelihood of completing college.