Top School Districts See Higher Home Prices
Data from Metrostudy and school district rankings from Niche.com suggest there is truth to the commonly held belief that home prices in top-rated U.S. school districts are higher than neighboring areas. On average, housing prices in counties with highly rated school districts were 25.09% higher than state averages.
These numbers support existing research on the relationship between housing prices and school districts. Eli Beracha, a professor of real estate and finance at Miami-based Florida International University and a co-author on the 2018 paper “The Capitalization of School Quality into Renter and Owner Housing,” said a positive correlation exists between the two variables.
“The literature is very clear and there is consistent evidence that better school quality, all other amenities equal, is correlated with housing prices,” Beracha says. “The magnitude [of the correlation] is different, it depends on how you control for other amenities, but the results are pretty consistent.”
Niche.com ranks school districts based on several factors, including academic test scores of students, teacher evaluation metrics, diversity metrics, health and safety metrics, resource and facility metrics, and clubs and activity participation metrics. Beracha says there is a cyclical relationship between families with more education and higher incomes locating in areas with higher rated school systems. However, even with the likelihood that higher rated school districts are in wealthier areas, Beracha said the results still suggest that a premium exists for quality education.
“Take, for example, two houses that are very, very close together. They may be neighbors [and] they may have the same amenities. But, one of them will be in a B-rated school district and the other happens to be across the school district line and their kids happen to be going to a school that is A-rated,” Beracha says. “You’ve basically controlled for all the other amenities that they both enjoy except for schools and we still see that the one that is attached to the A-level school is basically going for a higher price.”
Niche.com rated Jericho Union Free School District in Nassau County, N.Y. as the best school district in the United States. The median closing prices in Nassau County, located on Long Island, during 2017 were 70% higher than the median closing price of $416,900 in the state of New York.
Builders in the area say that many families are moving from New York City to Long Island because of the highly rated school districts like Jericho Union. As such, the demand for new homes far exceeds the supply in the area. Mitch Palley, CEO of the Long Island Builders Institute, said the perceived quality of school districts in Long Island areas like Jericho is a significant factor on the prices of homes. Palley also said the scarcity of land to build new homes contributes to the high prices in areas across Long Island like Nassau County.
Ohio’s Solon City School District in Cuyahoga County, Indiana’s West Lafayette Community School Corporation in Tippecanoe County, and Pennsylvania’s Tredyffrin-Easttown School District in Chester and Radnor Township School District in Delaware County rounded out Niche.com’s top five school districts.
Four counties on the list had median closing prices more than 50% higher than the state median. For instance, the median closing price for homes in Westchester County, N.Y., home to Edgemont Union Free School District—Niche.com’s 16th ranked district—was over $1 million higher than the median closing price for the state of New York.
Beracha says he and co-author William Hardin found a similar, weaker relationship between rental rates and highly rated school districts. Beracha said this finding led to the conclusion that families who want to provide better educations for their children but may not be financially able to buy in areas with quality school districts may be able to rent without facing the same high premium for education. Additionally, Beracha said there are similar but smaller premium effects with charter schools. Beracha and Hardin’s research suggests, though, that charter schools must be located in areas where public schools are not sufficient for a premium to be observed. If charter schools are located in regions with already highly-rated school districts, there is no premium for charter schools.
Only two counties in Niche.com’s top 25 school districts, Hildago County, Texas, and Tippecanoe County, Ind., had median closing prices below the medians for their respective states. Beracha said counties with high-quality school districts may have lower median prices because there may be other amenities that are perceived as more valuable than school quality available in other parts of the county or state. Additionally, in areas where charter or private schools are of high quality, the effect of these schools may overshadow the quality of public schools for many households and the median home price may be lower than expected, Beracha adds.
Charlotte O’Malley contributed to this report.