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Posted by on Jun 27, 2010 in Market Conditions, Thinking of Buying? | 17 comments | Print Print

Schools and Real Estate Values

Excerpts from the WSJ:

It’s supposed to be a buyer’s market. Yet, for parents determined to buy in areas associated with top schools, those bargains may be harder to come by. When housing markets go south, “areas with exceptional schools tend to hold their value better than the market overall,” says Michael Sklarz, president of Collateral Analytics, a Honolulu-based firm that specializes in real estate data analysis.

Home prices have dropped in areas with good schools, but the declines are typically nowhere near the levels in their surrounding metro areas.  In Irvine, Calif., a city that regularly gets national attention for its quality schools, average price per square foot has fallen 18% since its 2006 peak, but prices in the greater metro area surrounding Irvine fell 33%.  In the brainy town of Andover, Mass., prices are down just 4%, versus more than 16% for the Boston metro division.

State assessments, independent ratings from websites like GreatSchools and and annual magazine rankings of America’s top high schools have not only made it easy for parents to factor school test scores and parent-teacher ratios into their buying decisions, they’ve cemented the relationship between home prices and school quality.

When Florida rolled out its statewide grading system in 1999, the real estate market took note. According to research by David Figlio, who is now a professor of education, social policy and economics at Northwestern University, an A-rated school in Gainesville added about $10,000 to the value of a home there versus a B school.  Once a school is graded, the gap often grows. Strong ratings lead to better community support, which in turn leads to better schools. Today, the difference between an A school and B school might easily be $50,000 on a $300,000 house, he says.

That phenomenon isn’t lost on residents of Bellevue, Wash., a Seattle suburb that is home to some of the best schools in the state. “I don’t think there’s ever been a school levy on the ballot here that’s been turned down,” says broker Michael Orbino. Even residents who don’t have school-age children tend to stand behind the schools. It’s not altruism; it’s economics. All things being equal, homes in the Bellevue school district fetch as much as a 15% premium to those just outside of it, he says.

“But there’s more to it than that,” says Mr. Orbino. “Because the land is worth so much more in Bellevue, builders tend to build more expensive homes here,” making the school district that much more expensive to begin with. By Mr. Orbino’s estimate, the prices for single-family homes are down about 10% since the market peak. “But it isn’t a catch-all,” he says. Prices for ultra-luxury homes and condos, which generally aren’t influenced by schools, are down 30% to 40%, he says. So while prices per square foot in Bellevue have fallen slightly more than the Seattle market overall, prices for more family-friendly abodes haven’t necessarily seen the same declines.

Left with few other options, some parents get creative. Bellevue school administrators have seen all kinds of tactics for skirting the district’s policy that students spend at least four nights a week within boundary lines. Common ploys include using a family member’s address or taking over a resident’s utility bill, one of the documents used as proof of residency. The school district has uncovered 35 cases of enrollment fraud this year alone. Other families jump school boundaries by spending four nights a week in a small apartment and going home to a bigger house in another town for the weekends.

Two years ago, Daniel and Dee Shin used an inheritance from Mr. Shin’s father to pay $410,000 for the “cheapest house they could afford” in Bellevue for the sole purpose of securing a spot in the school district for their then 11-year-old daughter, Kayla. The 900-square-foot circa-1955 rambler is “beat up and not insulated very well,” says Mr. Shin, adding that he assumed that paying property taxes on the house would be enough to satisfy the school district’s residency requirements even if the family actually resided in a 2,326-square-foot, four-bedroom home in the nearby town of Renton. Their new neighbors in Bellevue, evidently, didn’t see it that way. They reported the Shins to the school district, and the district gave them an ultimatum: move into the Bellevue district by the time Kayla registers for high school in February, or start the following school year in another district.

The decision was clear for the Shins. They plan to spend the summer insulating the Bellevue home and doing their best to make it livable. Come January, they’ll move into that house, and their extended family will move into the house in Renton.

The Shins considered just sending Kayla to a private school, but Mr. Shins says that suggestion triggered “on demand tears” from Kayla, who doesn’t relish the idea of going to a different high school than her middle-school pals. After all the trouble the couple went through to get Kayla into Bellevue schools, they’re determined to see her graduate from Newport High School, which, Mr. Shin is quick to point out, is consistently ranked among the best in the country.


  1. “In the brainy town of Andover, Mass., prices are down just 4%”

    Makes me wonder just how brainy the residents are if they’re still paying retail. As for the Shins, it appears their intention was to spend $410k so their children could go to public school. I think that’s happening in Carmel Valley – people overpaying by $100-200k for the same thing. How much is private school?

  2. Private school can be $25-30,000 per year, every year, for 12 years per kid. Have 3 kids, that would be almost $100,000 per year that is not tax deductible, whereas a higher mortgage and property taxes are. Carmel Valley real estate is definately helped by the quality of the Del Mar school district.

    Here is the tuition schedule for La Jolla Country Day school, in case people do not believe me.

  3. Saving $10K – $30K per kid per year does indeed justify higher property values.

    But renters have it even better. You can rent a nice place in CV for less than it would cost to send 2 kids to private school, and for 1/3 the cost of owning.

  4. This behavior (and prices) have been true in the Boston suburbs since (at least) 1962 when my parents moved into Wayland, MA.
    Even back then, there were rankings of schools in every town.

  5. I would rather spend $100k+ extra for a house in a top district than $100k+ for private school.

    When my kid is done with school, I will likely recover all $100k from my property and have received free school. Whereas the lesser desired school district my tuition to the private school is gone, forever without a chance of it coming back.

  6. Very true Clearfund. But readers may want to know more. I can tell them that since prop 13 in 1977, our CA left leaning Gov & school districts, now blocked from their ‘business as usual’ increasing taxes to pay for their over inflated buildings ,salaries, and pensions,etc, jumped into a new love feast taking away funds from high housing costs districts and transferring it to worthless school districts like LA unified etc, and give free schooling to the illegals, etc. But by some of us keeping prices high and keeping neighborhoods decent, we countered their moves, even as they drained us. I commend our school districts and citizens who worked hard and struggled to do this for my two kids. Support your good schools in high cost locations to counter the idiots.

  7. The average house price for Carmel Valley in May 2010 shows as $850,000. Assuming 20% down, that would be a $3500/month payment + at least $750/month property tax ($4425/month total). Assuming a 28% federal + 10% state bracket, that would be $2750 per month after tax to own the average CV house. You can rent an apartment/townhome for that price, but the rent for a home in CV will exceed this, so you are actually better off buying.

  8. I have rented–even recently–and I much prefer owning, especailly in the long run–I can pay off my mortgage, but can’t ever get rid of my landlord!!!

  9. Schools that perform well are full of students who get a lot of parental support at home. This includes things like encouraging their kids to turn of the TV and read or do a puzzle.

    At a good public school or a private school you are likely to find lots of families like this. However, the buying in a neighborhood with poor schools and sending your kid to private schools may mean your neighbors and kids’ friends do not have the same priorities regarding education as you do.

    I think the argument that you can buy a house anywhere and send kids to private schools neglects that your kids are still going to be hanging out with the kids that go to the crappy local school.

  10. When considering the “rent vs. buy” scenario don’t forget to include the maintainance costs of owning. If you’re buying a newer home on a tiny lot (much of Carmel Valley), then your costs may not be that high. I live in a home built in the 80’s on a huge lot and I pay thousands each year for repairs and landscaping.

  11. clearfund- I am not disputing your basic claim:

    “When my kid is done with school, I will likely recover all $100k from my property and have received free school. Whereas the lesser desired school district my tuition to the private school is gone, forever without a chance of it coming back.”

    However, I’d like to add that there is likely an operating cost difference in the form of higher taxes, so “free” is not exactly free. Also we need to consider the opportunity cost of the extra $100k. That said, your point that the cost difference between private school and great public schools is substantial.

    And then we have not even discussed rent versus buy. In a down market, it’s better to rent rather than take the large market losses.

  12. Private school kids will not be hanging out with the neighboring public school kids, unless they attended the same school at some point in the past. Private school kids, and kids attending good public schools, are so busy these days, they are not hanging out on street corners.

  13. As someone who has no children but does pay taxes and has kept an eye on what high school rankings do for property values when choosing places to live, it has been my observation that putting more money into schools doesn’t make up for parents who are inattentive to their children’s educations, but also that CA schools were at the peak of their national rankings during the period when the state’s tax rates were at their highest. I have no idea how these two observations square with each other.

  14. Geotpf,

    I don’t know how you managed to bring race into this…pretty poor form.

    If I pay property taxes, I want it to go to the school that *MY* kids are going to. It has nothing to do with skin color. If I pay 3X the amount of taxes that a neighboring school district home owner pays, then my kid better get a better educational experience (i.e. don’t make me buy a laptop, etc, etc). Unfortunately, alot of people already lay claim to my money, and then call me a racist when I raise a complaint, and I’m not even white.

  15. Jeeman-BottomFisher used code words for minority kids (LA Unifed, illegals). I just removed the code words.

    As for your property taxes only going to local schools only, as I said before, there has been a court ruling that it is unconstitutional to do that. Since changing the constitution is neigh impossible, you will have to deal with the fact that that isn’t possible.

  16. By the time I post this, Geotpf’s comment may already be removed for his racial remarks, however he is corrent, in California public schools are funded equally from public money. However, the resources (involvement and contributions) from parents can vary greatly from district to district, and from school to school.

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