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Education spending on teachers – not buildings — lifts home prices

Neal Templin, Rate.com on

Published in Business News

Spending more on teachers lifts home prices, a new report finds. New buildings don’t matter. A study published by the National Bureau of Economic Research (NBER) adds to the potential research that education-savvy families may want to do before choosing a home or a school.

Many have focused on overall district spending per pupil, a widely followed statistic. But this study suggests that how that money gets spent is important, not just to learning but also to perceptions of school quality, which in turn affect local home prices.

The research further suggests that real estate price movements, which may be easier to discern than precisely how a school district is allocating its budget, are worth studying for clues to school quality.

The working paper follows separate research showing that higher school spending boosts salaries for students later in life. That 2015 study found a 1% increase in school spending increases the adult wages of a student by 0.70% to 0.80%.

The new study’s authors note, “When we disaggregate school spending into spending on salaries and non-salary spending, we find that that salary spending is positively capitalized into house prices whereas non-salary spending is not.”

An earlier study likewise found that increased spending on teacher salaries improved student test scores and reduced drop-out rates, but increases in capital spending — building new buildings — had no such impact.

 

Affluent communities have long seen home prices boosted by highly funded, top-performing school districts. But the new research indicates that increased school spending has the same positive effect on less affluent communities across demographic profiles.

“That spending on salaries is so highly valued by households suggests that households observe and appreciate the increase in either the number of positions funded, which might reduce class sizes, or the average salary per position, which might improve teacher quality,” the researchers said.

The NBER paper studied home prices nationwide in communities that experienced jumps in funding as a result of school financing reforms. It found each 1% rise in school spending produces a 0.95% increase in home prices, a remarkably high correlation.

The boost comes both from hiring more teachers and paying teachers more, write the authors of the report, Patrick Bayer of Duke University, Peter Q. Blair of Harvard University, and Kenneth Whaley of the University of Houston. They said that spending on school buildings didn’t translate to higher home prices.

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