When current or potential parents are looking for a home most believe that being near quality schools equals higher home prices. But is that just a real estate myth or is there a link between good school districts and increased home values? Here we break down the research and share ways to make all of this information work for you in your own home search.

 

CHICKEN OR THE EGG – Which Comes First: High Home Values or Good Schools?

When attempting to understand the relationship between home prices and quality schools, it often feels like you’re going around in circles as to who influences whom. While everyone can usually agree that homes “in the best school districts, on average, sell for higher prices,” not everyone agrees on why. Is it the homes higher value that leads to better schools? Or is it instead the better schools that lead to higher home values?

A. Do higher scoring schools mean higher costs?

Some studies say yes, it’s the higher scoring schools that lead to higher home costs. One study by the Brookings Institute analyzed the United States’ 100 largest metro areas. Their analysis found that, on average, homes in higher performing school districts were $205,000 more than those in lower performing ones. Not only that, but the study also showed that homes in the higher performing districts had greater square footage as well.

B. Or do higher home values lead to higher scoring schools?

However, a review by Realtor.com found that “on average, more affluent homeowners live in more sought-after school districts.” Their data used large sample sizes and indicated that the greater the community’s affluence, the higher their school district’s test scores. This led the author of the review to “hypothesize that the high home prices make the schools better.”

C. Schools aren’t the only factor for higher home values.

This isn’t to say that schools are the only factor that homebuying parents and future parents rely on to make their final decision. Nor are schools the ultimate determining issue in terms of a home’s price and value. Things like “safety, commute times, jobs, and housing
inventory all play a part in any market.” Overall though, it tends to hold true that “a good home in a good school district can fetch a higher price, and also hold a better resale value than a similar home in a less-stellar district.”

D. Yet, it plays a large role in what homebuyers consider when purchasing a home.

This influence of good schools on home buying decisions is borne out in an array of potential homebuyer surveys. According to one by the National Association of Realtors, 26% of home buyers “considered the quality of schools when looking for a new home” in 2017.

A similar survey by Realtor.com found that of almost 1000 prospective homeowners, a full 91% said that school boundaries were an important factor in their search. What was surprising was how much some buyers were willing to give up to be in that coveted school zone. Extras such as an added bedroom or vaulted ceilings and a whopping one-third of buyers were willing to go with a smaller home just to be in the “right” district.

Another real estate website compared buying a home in a strong public school zone as a better investment than private school tuition. “A pricier home in a better public school district could save a family upwards of $200,000 in private school tuition over a decade, in addition to recouping some costs when they sell a home. That prep school tuition? That’s gone for good.”

 

HOW MUCH DO GOOD SCHOOLS IMPACT HOME PRICES?

So just how much does being a strong school zone increase home costs? Here we break down the findings.

A. Different Studies Show Different Levels of Impact, But All Show Increased Home Values

There are a number of studies that show differing results in terms of exactly how much home values increase with good schools nearby. One real estate company analyzed over 400,000 home sales and almost 11,000 elementary school districts within close to 60 US metro areas. From this review, they found that, “on average, buyers pay $50 more per square foot for homes in top-rated school districts compared with homes served by average-rated schools.” Determining a school’s quality was based on “characteristics and test scores provided by the research firms GreatSchools and Onboard Informatics.”

Realtor.com also took a look in 2016, using school ratings from GreatSchools.org and their database of listings and found a nearly 50% higher price in top-rated school districts over the national median home price.

Surprisingly, even amongst comparable “above average” schools, a slight increase or decrease in a school’s overall rating (the difference between a 9 or a 10, with 10 being the highest) still had a major influence on a home’s price.

Even looking at homes with similar square footage and the same number of bedrooms and baths, the difference in price could range from “tens of thousands to hundreds of thousands of dollars” depending on which location had the better schools. For homes in more expensive areas like California, that meant a difference of between $300,000 – $500,000 for similar homes.

Moving outside of metro areas did little to ease this financial increase as the home prices in suburbs are still impacted by their schools. According to the New York Times, economists estimate that even a 5% of improvement in a school’s test scores can raise prices by 2.5%.”

This impact shows little signs of slowing, and may in fact soon increase, as a 2017 National Association of Realtors study found that the “under-36 crowd forms the largest new-home-buying cohort” and almost half of them have at least one child under the age of 18.

 

TAKEAWAYS

You may be wondering at this point what all of this information means for you and your potential future home. Here are three important takeaways from all of this home buying and school data.

A. Correlation vs. Causation

As any student of a statistics class at some point in their life has learned, correlation doesn’t equal causation. By that, we mean that just because there is a correlation between quality schools and higher home values, that does not necessarily mean that one causes the other. There are a wide variety of socioeconomic and situational factors that go into the costs of individual homes as well as what makes a school a “good” school. So while it’s important to know the correlation between these two items, it’s equally crucial to understand that there are other factors present as well.

B. Do Your Own Research

Speaking of situational and other factors that influence whether a school is “good,” many of the studies that analyze this information focus on test scores. These scores only tell a part of the full story, yet they are most often quoted since they are easily quantifiable. As one study author stated, “There can be a self-reinforcing mechanism here that might overemphasize the effect of the school itself on the prices of those homes.”

Test scores miss out on conveying information such as the teacher to student ratio, the types and number of subjects offered to students, etc. At the end of the day, it’s important for parents and potential parents to do their own research. They should figure out what it is they believe is most important in an educational environment and then look for schools and districts that meet that criteria.

C. Other Options 

There are also a variety of options that skirt around the direct issue of home costs and school performance. Charter schools are almost always without boundaries, meaning that families can live in a more affordable area and still send their children to high-performing schools. Larger cities also have larger rental markets, which means that despite wanting to focus on purchasing a home, it might serve some parents better to rent while their children are in school. These are just two of a number of options available to parents and potential parents.

At the end of the day, no study or data will be able to fully quantify what’s best for you and your family, both in terms of their education and your future home. Use the information in this article combined with these three takeaways and find your future home with the right combination of factors that makes the most sense for you.