Test Scores and Home Prices

Published September 1, 1998

Just as a good report card may net a student a higher allowance, a good report card for a school may lead to higher home values in the school district, according to researchers at the Federal Reserve Bank of Dallas.

Southern Methodist University economics professor Kathy J. Hayes and Federal Reserve Bank of Dallas economist Lori L. Taylor reported that home prices in North Dallas increased by 2.6 percent for every 10 percent increase in sixth-grade math scores. The premium arises not from the characteristics of the student body, but from the marginal effect of the school on student performance. Only the size and age of the property and distance from downtown have more influence on residential real estate values than the test score measure of school quality. School spending had no effect on home values.

“The school characteristic for which buyers pay a premium is the same characteristic that economists associate with school quality, namely the marginal effect of the school on student performance,” note Hayes and Taylor. Policies that affect student performance can have a significant effect on residential property values, say the researchers, whose work “also casts considerable doubt on policy analyses or policy initiatives that equate school spending with school quality.”

In another study reported earlier this year, economist Sandra Black of the Federal Reserve Bank of New York showed that, in Boston, moving from an elementary school ranked at the 25th percentile to one ranked at the 75th percentile was associated with a 3 percent increase in average home prices.