There is a correlation between home values and school quality in neighborhoods divided by school systems, suggesting homeowners living in neighborhoods with a high performing school might pay more for their homes, according to new data from Collateral Analytics.
Collateral Analytics, a developer and provider of automated valuation models and other property valuation tools, determined that attributes like crime, transportation, recreational opportunities and schooling can affect neighborhood desirability.
The importance of any of these factors depends on a homeowner's willingness to pay for them. Research indicated that the school system is a significant motivator for location, and that performance can affect home value, according to the company.
The company said in theory households that place prominence in school value will tend to gather around locations with better school quality, therefore capitalizing on home values.
In order to conduct this research, Collateral Analytics compared the values of similar homes in the same neighborhood that were divided by school district lines. Evendale/Princeton School District and Sycamore School District, which are both located in the northern suburbs of Cincinnati, Ohio had a value difference of 58% per square foot as of 2018.
Although the homes were similar in size and model, it concluded that the homes in the less valued school district were typically occupied by families without children or those who chose to send their children to parochial schools. Homes that were in the sycamore school district were primarily inhabited by younger families with more children, therefore increasing the values of their homes, the company said.
Collateral Analytics also compared performance tests between schools in San Diego County and researched the home prices of four districts and the persistence of school price spreads. It recognized that values of homes stayed rather consistent, but also discovered that higher elementary school math and language scores correlated with more expensive housing.
The company said scores alone may not explain home prices and theorize that capitalization in these areas occur when high performing schools are in short supply. Simply, the lack of supply eventually leads to a build up of property value, therefore meaning neighborhoods with a low supply of high performing schools have the largest school quality capitalization rate.
While school quality does not always affect every community, Collateral Analytics data suggests that in certain areas of the country, performance may directly impact residential home prices and how stable premiums will be over time.