Did you send your child to school today well-prepared and rested? If so,you may have taken a tiny step toward enhancing the value of your home.
Forget showy curbside flowers and the latest home fashions. A growing body of academic research, including a new study of 2005 Silicon Valley home sales, shows that students' academic performance at local public schools plays a surprisingly strong role in determining the value of homes.
In Cupertino, a town renowned for its students' excellent state test scores, the difference in home prices in the poorest-performing high school's catchment area versus those in the best-performing high school's area is $250,000, according to research from Palo Alto's Movoto Inc.
Home buyers were willing to pay a whopping $378,000 more to ensure their children attended Los Gatos High School versus Leigh High School in the Campbell Union High School District last year, according to an Movoto analysis of comparable home sales on either side of the districts' dividing line. Student performance scores were 15 percent higher for the
Los Gatos high school than Leigh on the state's Academic Performance Index for the 2004-2005 school year.
The same kind of premium exists for homes in Mountain View's Miramonte area, where some homes feed into the Los Altos elementary and junior-high school district and others into Mountain View's. Miramonte home buyers on average spent an additional $142,000 last year to buy a home that fed into the Los Altos lower schools, where student performance scores were 13 percent higher. Middle school and high school scores do not differ that much.
Matthew Swenson, a Los Gatos Realtor who works for Alain Pinel, says the magnitude of the $378,000 premium for Los Gatos High does not surprise him at all.
"School districts are big for buyers in Los Gatos. Family is important, and parents want to give their kids everything," he says. "If you spend $1.5 million on a house, you want to give them what you believe is the best opportunity."
Even buyers who don't have kids are often keyed into the strong relationship between school quality and a home's re-sale value, he and other agents say.
Swenson says, "I had a conversation with a buyer today. He said, 'I don't care about schools, but I know it's important because when a down market comes, the value of a good location is going to kick in. If the market becomes a buyer's market, the seller with the premier home in the premier location is going to fare the best and that includes schools'."
In the Los Gatos analysis, as in all probes of school quality and its relationship with house prices, peeling out factors other than schools such as disparate house size and neighborhoods that contribute to housing value is the most difficult and important precursor. It's fairly evident, for instance, that among Silicon Valley's socially aware a Los
Gatos address carries a cachet that a Campbell or San Jose address does not, adding an unquantifiable price premium to Los Gatos homes relative to those locations that is not directly related to schools.
In addition, the Los Gatos situation illustrates what Mr. Swenson and others interviewed for this story say can be the difficulty of sorting out which factor comes first: the good schools or the expensive homes and well-educated, well-to-do parents that typically come with them. Such parents generally put a premium on education, sending to schools
children poised to learn and perform well on standardized tests.
The Business Journal worked with Movoto, a Palo Alto Internet start-up and brokerage, to reach its conclusions regarding the dollar premiums attached to Silicon Valley homes in districts with high-scoring schools
on state performance exams. Movoto reviewed the sale of 334 Silicon Valley single-family houses in 2005 in nearly a dozen towns and school districts stretching from Menlo Park to San Jose. Fewer than five early
2006 sales were also included.
Movoto specializes in providing prospective home buyers with detailed information on homes, schools, crime rates, resident demographics and local home-sales data based on the regional multiple listing service and public information drawn from such sources as the U.S. Census Bureau and the state of California's Department of Education.
Dan Lorimer, a company co-founder and site architect of Movoto, performed much of the analysis. His findings were based on the relationship between home prices based on actual sales and the state's academic performance index, or API, for the various schools. API scores range from a low of 200 to a high of 1,000. The state's goal for all schools is to score at least 800.
Movoto analyzed the data exclusively for the Business Journal in part because it, too, wants to better understand how to quantify the importance of school quality to home prices. In some cases the analysis did not yield clear enough results to reach any conclusion, as in the case of Palo Alto and Menlo Park-Atherton schools. Palo Alto High
School's 2004 API score is more than 200 points higher than that for Menlo Park-Atherton High School, yet the price per square foot of comparably sized three-bedroom, two-bath homes was virtually the same at $732 in Palo Alto and $729 in Atherton.
"To me it would seem that you would see more of an effect" in the home prices between the different high schools, Mr. Lorimer says. "It may be that (the lower high-school API score) doesn't affect Atherton prices as
much because so many people send their kids to private schools."
In addition, he says, the homes in the two high schools' catchment areas are not nearly as comparable as those in, say, Cupertino, which clouds any conclusions further.
Nonetheless, the relationship between home prices and school quality has been fairly strongly established in multiple academic studies by researchers in locations as disparate as Ohio, North Carolina, Florida, Connecticut and Reading, England. Invariably, they find that the better quality the local schools, the higher priced the home.
"School quality is the most important cause of the variation in ... house prices," concludes a 1996 study by David Brasington, an economist at Louisiana State University in Baton Rouge, Louisiana, and his
then-dissertation advisor, Donald R. Haurin in the Departments of Economics and Finance at Ohio State University. The study looked at single-family homes in 134 school districts in six metropolitan areas.
In an interview, Mr. Brasington says his studies of Ohio schools have shown that if school quality improves by 10 percent as measured on a student proficiency test, then home prices in its catchment area rise by 2 percent. Other studies looking at Florida schools have found house price increases of nearly 3 percent in similar circumstances and as much as a 5 percent increase in a study of Connecticut home values.
A study of home prices in England by two professors at the London School of Economics and Political Science and Williams College in Massachusetts found, among other things, that a home well-suited for raising a family carries an even higher price premium if it is in the catchment area of a good school.
The same study found that expectations about future school quality also affected prices, with home buyers discounting for risk if they found too much variability in past school performance test scores. They also found that home buyers really paid price premiums only to get into the very best schools, and that home prices in mediocre or even poor schools were not materially different.
Silicon Valley/San Jose Business Journal
April 21, 2006
by Sharon Simonson
