Correlation between Good Schools and Property Values
As there are all kinds of people looking for homes at a given time, real estate sales may be impacted by any number of factors. One particular selling point that is often heard is the correlation between good schools and property values.
But what’s the validity of this association between the value of homes and their neighborhood educational facilities? Do schools, universities, and other entities generally labeled as “learning centers” bear direct relevance on properties on the market? Does their perceived role as a symbol of progress and development for an area actually “hold true” for the implied benefit? What impact does a school have on its surrounding areas? And how much of this impact is beneficial to the property buyer?
Defining a School…
Dictionary.com defines a “school” as “an institution where instruction is given, especially to persons under college age,” meaning that any business where people are taught might fall under this category. Though non-traditional schools like vocational training centers (e.g., a beauty academy) may be understood as complying with the definition, the term is used more frequently to refer to institutions that educate pre-college students.
Criteria must also be established by which the value of the school to its neighborhood can be considered, namely: how well the school is performing, what kind of reputation it has, the number of students attending, etc. All these things may be leveraged as selling points. Conversely, we must also ask, what benefit is the school to the neighborhood if it, say, performs poorly or has a “negative image” within the community?
The adjacency of the school must be specified as well. It may be argued that schools within a city, county, or region may have an impact on the “overall desirability” of an area if the term is meant to be used to understand an area “as a whole.” How far away are the properties being measured to the school? Are there “ripples of value increase” that emanate from the centralized school out to properties?
Do Schools Past the Test For Real Estate?
GREEN’s research into this subject found several supporting points to justify the positive association between schools and real estate values.
National profiler of education facilities Public School Review details a National Bureau of Economic Research study from 2002 that determined a positive correlation between school spending and property values. It found that for every “$1.00 increase in per pupil state aid increases aggregate per pupil housing values by about $20.00.” That is to say that if a school is considered “well-funded,” it is perceived as being successful (readers should take note that the study doesn’t consider the “efficiency of the school’s budget” and that wealthier residents may have a “wider range of options” available to them).
Relationships between the property value/ school quality dynamic and the socio-economic “gaps” of various groups of students should also be considered. Some advocates of fair housing have argued that the quest for properties near great schools furthers the divide in demographics, and have even questioned the provision of school performance data by real estate companies. This understanding then adds another interpretation of schools’ value to an area, meaning that some people perceive schools as a general gauge for “the quality of life in the area.”
BiggerPockets contributor Ken Corsini adds his findings to the issue. His study into housing values and schools looked at property values in 2009 to see how the time’s recession had affected them. He wanted to “identify changes in the demand for certain characteristics of residential properties as the market was falling,” comparing what buyers valued in 2009 to what they had valued in 2006. Examining 150 homes from Cobb County (an area outside downtown Atlanta), he determined that properties near schools that had a “four or five star” rating from educational review site SchoolDigger were “almost completely insulated” from declining property values while those properties near schools with a “three star rating or less” had notable losses in property value.
Providing a “further dig” into the issue is a literature review from Duke University which discusses several studies that support the correlation between property values and schools. One study on K-12 schools from 1994-2000 on housing prices in Greenville, S.C. showed a positive correlation between schools considered “high-rated” and property value. Another study looked at schools in Boston, M.A. and how their performance may have influenced property value. Even after the study was “controlled for omitted variables,” it still determined that “better school quality, as shown by an increase in test scores, has a positive effect on housing prices.” A third study that explored the connection in Philadelphia housing values showed “that overall school quality, as measured by test scores, is positively related to the price of housing in that school district.”
Schools outside of the traditional definition of the institution may also hold a positive effect on real estate. Another article for Duke University looked at the property values of homes within a block of Duke University’s East Campus and homes within two blocks. Per the research of the study, “the homes within the first block were consistently more expensive than those in the second block by significant amounts.” The researcher points to the items that can cause such an influence on property values, including “the impact that Duke University has on the employment of those who live near campus,” the character of the homes closer to campus, and a “kind of cushion” against a market that would lower home values.
The notion of considering schools as “a good omen” for residential development is not just rooted in the thought processes between consumer and real estate agents, but the professional assessments of some who work in the educational fields. “While we don’t track data on property values near schools, we do know historically that when we open a new school,” says James Evans, Communications and Community Relations Coordinator of Middle Tennessee’s Rutherford County Schools “It’s not long before new housing subdivisions spring up nearby. In fact, many of our newer schools — the Blackman schools, Stewarts Creek, Rockvale Middle — are already considered overcrowded because of the housing booms in their zones. Though Rutherford County, TN is one of the fastest growing cities in the country, Evans’ accounts of the growth seen in his county may hold typical for other areas if nothing impedes development.
Not Everyone is Looking For A School …
Those home buyers looking to “plant their roots” may find a school’s proximity favorable. But not everyone wants to live near a school though, and this is where getting to know the home buyer comes in handy. GREEN reached out to Middle Tennessee Realty & Auction, LLCs Principal Broker Jim Graves who shared that his “neck of the woods” doesn’t see the benefits of schools. Graves explained to GREEN that the “sales pitch of schools” works for the needs of certain buyers. “In the town where my office is located, it’s my experience that the location of schools doesn’t directly impact the property value for appraisals, tax assessments or market value. However, school locations do make such homes more desirable to certain kinds of markets, i.e., school employees desiring to live close by and those wanting to live near a school for their children.”
Also, the idea of living near a school might not be seen as favorable by every person wanting to buy a home. According to AJK Realty, the cattle-call of students entering and leaving the campus can create traffic issues at the same time every day, ranging from students walking in the streets to cars and buses crawling at through the school zone. Denver realtor Live Urban Real Estate also expresses these concerns, as well as the other issues like noise pollution outside of classroom hours.
It should be noted that schools may also influence other factors in the neighborhood. And though a buyer might want to get a person’s honest assessment of an area, real estate agents cannot answer questions related to crime and demographic makeup of a neighborhood by law. Simply stated, it is up to the person buying the home to determine whether or not the area is a good fit for them.
Pencils Down …
Data from numerous sources shows that schools do in fact increase the property value of the surrounding area, so long as the following criteria are met: 1) It’s a certain kind of school that 2) performs well and 3) is adequately resourced or able to spend its money efficiently. The counter for the “selling point” of the school’s proximity may be the question “Is it a good school? How does it compare to other schools in the county, state, and country?”
Certain schools, such as high schools and charter schools, may or may not be seen as being “desirable” for the person on the market to buy. This is why the home-buyer’s needs for such a facility should be considered. What does the home buyer want in a neighborhood? Do they need a property that is near a certain educational facility, work, or some other location? Is the prospective buyer wanting to buy because of the school itself, because of the “culture of the school,” or for another reason entirely (e.g., the school is their place of employment).
The proposed “trade-off” for not buying property in an area adjacent to schools deemed of higher quality is making a purchase of a lesser value. This means that the school performance data then may become relevant for any purchaser wanting to understand the factors that constitute the price of their home.
In essence, if a buyer is looking for a property near a school for any reason, then they must be willing to pay a higher price for their new home.