This paper examines the claims that in North Shore School District 112, the presence of a walkable, neighborhood school increases the value of a home, closing of such schools will cause property values to decline and increasing property taxes causes a decrease in property values. My research shows that these claims are not supported by the available data.
On March 15th the residents of North Shore School District 112 will vote on a referendum to address major facility and financial challenges. Across the 12 district buildings inefficiencies exist with maintenance, staffing and upkeep. Further, 11 of the district’s buildings require expensive safety, security and ADA compliancy improvements. To address these challenges, the board of education recommended the construction of a single middle school campus.
It did not take long before those opposed to the referendum took up the rallying cry of declining property values. Those opposed claim that increasing the distance between school and home decreases property values. They also claim that the marginal increase in the residential property tax would make homes less affordable, which would then scare away prospective homebuyers causing a further drop in values. To support these claims the opposition has relied on Bogart & Cromwell’s (2000) article in the Journal of Urban Economy and Espey et al.’s (2007) article in the Journal of Agricultural and Applied Economics. While both papers address the question of school proximity and its effect on property values, these studies are inherently disparate to Highland Park.
The Bogart & Cromwell study examined the realignment of the school district in Shaker Heights, Ohio between 1983 & 1984. The mean sale price of the sample in Shaker Heights was $58,090, compared to the current $607,771 of Highland Park. Because the authors looked at sales over a 12-year period, they attempted to compensate for inflation by deflating sales prices with annual housing price index, but do not appear to factor in any other market changes that might have occurred over such a long period. The authors showed a statistical difference between repeat home sales where there was a change in a home’s school boundaries, but these boundary shifts, by design, dramatically spanned across districts that were previously racially and economically unbalanced. The authors make no attempt to measure any proximity effect of schools or even measure distance of “neighborhood school” from a home sale.
The Espey et al. study examined the impact of school quality and school proximity on property values in Greenville, SC., where the median sale price of a home in the sample was $98,405, compared to $538,750 for Highland Park. The Greenville school district encompasses urban, suburban and rural areas and has an attendance of 76,000 students of which 15% attend a school of choice via a lottery system and has 100 schools. To measure the effect distance has between home and school, the authors appear inexplicably to set boundaries for distance from each school type by first determining distance less than and greater than the mean distance from each school type and then using an iterative process to further refine proximity gradations that had significance. It is never adequately explained why this seemingly arbitrary creation of zones is a better way to measure a proximity effect than simple linear distance or why the zones are different for the different types of schools. I suspect it’s because this is how the authors were able to “find” an effect.
Since I was not able to find any literature examining a school proximity effect in a situation similar to the one faced by Highland Park voters I decided to conduct my own analysis. CARE asserts that having a school within walking distance from a home makes the home more valuable and that losing this feature will reduce the value of a home. Positive proximity effects are often seen in residential real estate when opportunity costs are reduced (like being close to a Metra station or central business district) or when prestige from having a property with a scarce feature (like being close to Lake Michigan) is increased. As one gets farther away from a location with desirable utility, it takes longer to get to that location thus increasing the opportunity cost. The increased distance from a scarce feature make it less likely to derive any utility or prestige from that feature.
To test for a school proximity effect I used a hedonic regression model to statistically estimate the relationship of a properties characteristics and its market value. If a school proximity effect was statistically significant, after accounting for other variables, one would expect the value of a home to decrease as distance (and opportunity costs) increased.
My model consisted of 282 past sales in Highland Park and I used linear distance to test for a school proximity effect. I did this by geocoding each property in the sample data set and calculating the distance to the closest elementary, middle and high school.
My results showed the opposite effect than claimed by CARE, with home values rising with increased distance from the nearest school, but this result was not statistically strong enough to be considered reliable (Table 1). I also tested the zone results described in the Espey, et al. study and again found the opposite to be true in Highland Park but these results also did not have the statistical confidence to assume a real effect (Table 2). One should instead conclude that the distance from a house to the nearest elementary and middle school has no reliable effect on value.
This does not come as a surprise given the relatively short distances from any given point in Highland Park to any other point, the low utility derived from a decreased distance to a school and the increase in congestion typically found around schools.
|Factors||Slope Coefficients||Standard Error||t Stat||P-value|
|Above Grade SqFt||62.38||7.256806||8.596786||0.00000000|
|# Interior Fireplaces||31279.75||8441.906497||3.705295||0.00025665|
|Recent Rehab Y/N||25658.25||12382.389588||2.072157||0.03921071|
|Mast Bd Bth Y/N||49844.457||16571.936327||3.007763||0.00288287|
|Lot Sq Ft||1.52||0.711066||2.144934||0.03286054|
|Market Conditions / Time||-84.48||60.681705||-1.392315||0.16498537|
|Longitude (Distance from Lake Michigan)||-1645482.88||449364.549413||-3.661800||0.00030190|
|# Garage Spaces||32541.42||10179.755732||3.196680||0.00155746|
|# Full Baths||30942.65||8521.008683||3.631337||0.00033796|
|Factors||Slope Coefficients||Standard Error||t Stat||P-value|
In regards to taxes, it is interesting that the CARE group does not offer any evidence to support its claim that the modest increase in property tax that will accompany a passed referendum will cause a drop in home values. What is even more interesting is the group’s apparent lack of knowledge of the 2008 study by Cellini, Ferreira, & Rothstein in The Quarterly Journal of Economics. This study looked specifically at school bond measures across California were the average house price across all districts was $241,537. This study found that in districts where bond measures were approved, housing prices rose by 6% or more after the passage of a measure. No such increase was visible in districts where the measures failed. The authors also dispel the myth that a tax increase from a school bond measure will negatively impact house prices and reasons that residents unwilling to pay the marginal increases in property tax tend to leave the community and are replaced by home buyers who are willing to pay for school quality. The authors go on to answer their own question “since new home buyers are willing to pay much more in houses prices and property taxes than the total new school investments per house, why do bond referenda ever fail?” saying that “many voters make their decisions on the basis of their personal valuations rather than the anticipated effect on home prices.
With respect to Highland Park property values, there is no compelling evidence that increasing the distance of a home to the nearest elementary or middle school or increasing the property taxes on that home will negatively impact the value of the property. Evidence exists that school district capital improvements, such as the one North Shore District 112 is proposing along with an increase in property tax to pay for those improvements is likely to have a positive impact on house prices. From a home value perspective, passing the referendum is likely to bring about the most positive outcome.