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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.

Introduction

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.

Results

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.

Table 1.
Factors Slope Coefficients   Standard Error   t Stat P-value
Intercept 144523336.72 39443328.010764 3.664076 0.00029936
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
Condition 92329.41 25998.676896 3.551312 0.00045295
Market Conditions / Time -84.48 60.681705 -1.392315 0.16498537
Longitude (Distance from Lake Michigan) -1645482.88 449364.549413 -3.661800 0.00030190
Kitchen Upgrades 39140.85 17666.027883 2.215600 0.02756265
# Garage Spaces 32541.42 10179.755732 3.196680 0.00155746
# Full Baths 30942.65 8521.008683 3.631337 0.00033796
Adverse Location -52177.27 19168.995293 -2.721962 0.00691661
Dist GRS 26901.61 23919.412748 1.124677 0.26173592
Dist JR 23479.55 15453.797427 1.519339 0.12986044
Dist HPHS 5009.217 8730.230216 0.573778 0.56660080
   Table 2.
Factors Slope Coefficients   Standard Error   t Stat P-value
JR<801 -37232.2418332361 53095.936736 -0.701226 0.48377052
GS <801 -10165.8994875841 24522.380642 -0.414556 0.67879861

 

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.

Conclusion

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.

    Posted in: Science  

Comments(6)

  • Amy
    March 5, 2016, 9:16 am  Reply

    What about the property values for those who live in the immediate area of the proposed middle school? The plan looks like it will decrease area parks and increase traffic volume on Ridge.

    • Evan Kane
      March 6, 2016, 2:34 pm

      Hi Amy,

      That is a great question. I don’t know that the park and open space is actually being decreased since there will would be fewer buildings on the same amount of land, but whatever nominal change in park space is (greater or less), I would not expect that to impact home values in any way.

      Regarding traffic volume, there already is a strong negative correlation between living on a busy street and a decreased home value. The traffic study identified two intersections where there would be significant degradation of intersection service without any mitigation strategies during peek times. This is the area around Richfield, Old Deerfield and Ridge along with the intersection of Ridge and Red Oak. Since people who live on major collector roads like Ridge and Clayey already have properties that are worth less than properties on the local roads (usually why the home owners purchased those properties), I would not expect any change in property values due to the extra peak time traffic.

      One can also look at the area around the High School as an analog. That area has significantly more traffic volume than the middle school campus will have but houses around the High School do not suffer a lower property value if they are not on a major collector road.

  • Jane
    March 5, 2016, 7:32 pm  Reply

    Great, who paid for your expertise or did you offer your services for free?
    Also, are you a resident of Highland Park?

    • Evan Kane
      March 6, 2016, 2:44 pm

      Hi Jane,

      My study was unfunded and no one asked me to do it. I was personally motivated by what appeared to be unwarranted and unsubstantiated claims by the CARE group about property values. Personally I think it is very irresponsible, though somewhat predictable for protest groups to use fear of declining property values to scare people to their side when no good evidence for that claim exists. Professionally, I simply wanted to know if this claim was likely to be true or not.

      I live on Barberry, my child went to Red Oak and now HPHS.

  • Julie
    March 8, 2016, 9:51 am  Reply

    I really appreciate you taking the time to research what my gut has been telling me. I know when we purchased our home in HP a big factor for us was our proximity to schools.

    • Evan Kane
      March 8, 2016, 11:25 am

      Thanks Julie. Proximity to a school is certainly a factor for some home buyers. To help us understand an impact on home values we need to understand how much of a premium on average (if any) are home buyers willing to pay for closer proximity to a school when we account for other factors like size, features, proximity to other locations besides schools etc. When we do this, we don’t see any evidence that buyers in Highland Park put a statistically significant premium on school proximity.

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