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This study examines housing value capitalization of the characteristics and tax costs of public education by exploiting the imperfect congruence of the boundaries of public school districts and elementary enrollment areas with the boundaries of incorporated jurisdictions providing other public services in Monroe County, New York. The study finds, after controlling for student body composition, high school characteristics, and other public services, substantively large effects of elementary school output on housing values using both a standard log-linear specification and a multiplicative specification that estimates indexes of quality-adjusted housing quantity and locational price. The empirical results suggest that housing values in the central city are elastic with respect to improvements in elementary school outputs.

INTRODUCTION

In extensive body of research has established the importance of both housing characteristics and location in the determination of the market value of residential properties. More recent research has attempted to assess the extent to which the package of public services available at specific locations are capitalized into the value of residential properties (Ross and Yinger, 1999). In this paper we focus on the capitalization of public school quality. Specifically, we estimate school quality premiums after controlling for the characteristics of houses, the qualities of their neighborhoods, and the bundle of non-school public services that they receive.

The task of estimating school quality premiums is often complicated by the coincidence of school enrollment boundaries with the boundaries of incorporated political jurisdictions, such as cities, towns, and villages, that provide other important public services. Where these boundaries perfectly coincide, there is no statistical basis for separating the housing value effects associated with public schooling from those associated with other public services. Consequently, if they are to isolate the effect of school quality, researchers must find locales where at least some residences in the same political jurisdiction differ in terms of school access.

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Acknowledgments

We thank a number of our research assistants for helping us assemble the data set upon which the research reported here is based. Meredith Tobin executed the initial sampling and Melinda J. Fountain linked properties to schools. Chris Blaha, Ben-Ari Elias, Sarah Fauth, and Oswaldo Urdapilleta helped prepare the data set for analysis. We thank Eric Hanushek for his advice at various points in the project, John Quigley for encouragement, and John Jackson, Jennie Wenger, and William T. Dickens for helpful comments. We also thank the anonymous referees for their useful comments.

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[Author Affiliation]

Michael J. Wolkoff

Department of Economics, University of Rochester, Rochester, NY 14627