School, what is it good for?

When it comes to home prices, school matters. Buyers will pay a premium to live near top schools.

August 30, 2004: 11:08 AM EDT
By Sarah Max, CNN/Money senior writer

BEND, Ore. (CNN/Money) – There's even more to be said about the value of a good education. In real estate, a healthy school often begets a healthy housing market.

"Anecdotally, homes in good school districts sell faster and at higher prices," said National Association of Realtors spokesman Walter Molony.

The simple explanation is that parents with school-age children are willing to pay a premium for housing that gives their children access to superior schools. School data is now widely available, for free, on such sites as GreatSchools.net and HomeGain.com.

"In my town, property values differ based on what elementary school you're going to be in," added David Stiff, senior economist for Fiserv Case Shiller Weiss, in Cambridge, Mass. A house in a top school attendance zone – the area surrounding a specific school – would sell for at least 10 percent more than a similar house in a lesser school zone, he estimates.

In some areas, the difference in home values is even greater, said William Bainbridge, president and CEO of SchoolMatch.com and HouseAppreciation.com, which track school performance and property values for 15,530 different high school attendance zones.

The city of Chicago and the suburb of Park Ridge intersect on the same street, for example. Yet, home prices on the Park Ridge side are significantly higher than on the Chicago side, he said, because schools in Park Ridge are so much better.

Margaret Sullivan, executive vice president of the National Association of Independent Fee Appraisers said home values in her area, St. Louis, are affected not just by public schools but proximity to private schools and parochial schools. Appraisers usually take into consideration school performance when determining a home's value.

Cause or effect?

That houses near good schools sell for a premium is widely accepted. What is unclear, said Stiff, is whether top-notch schools boost housing values or whether rising home values (and property tax revenue) boost school performance.

It's possible that both are simply a reflection of the types of people moving into an area. "The performance of a school depends a lot on the families who attend them," he said.

It's also not clear whether school quality affects the rate at which home values appreciate. On the upside, houses in established neighborhoods may not have as much room to appreciate as property on the fringes. In down markets, however, houses that feed into good schools do tend to hold their value better, said Stiff. In other words, there is less price volatility.

Bainbridge argues that schools are a bigger force behind home prices. "We believe it is the school causing the property value to go up," said Bainbridge. "A few years ago, for example, Pine-Richland High School near Pittsburgh, Penn., brought in a fantastic superintendent," he said. "People started moving in because of the school, and then property values went up."

Also, the rate at which home prices appreciate does go hand in hand with school performance, he said.

To help illustrate this, CNN/Money asked Bainbridge for housing and school data in three randomly chosen metropolitan markets: Chicago, Denver and Pittsburgh.

Within each market, Bainbridge found five school zones with relatively high housing appreciation and five school zones with relatively low appreciation. After those areas were identified, he looked up each school's performance, which he rates on a scale of 0 to 99 using college entrance exams and the percentage of students taking those exams.

What we found was a clear correlation between school performance and housing appreciation. In fact, in the 15 zones with relatively high appreciation, the schools had an average rating of 90. In the 15 zones with relatively low appreciation, the schools had an average rating of just 32.

Not true everywhere

Of course, not everyone has school on the brain.

According to an NAR survey of buyers in 2003, 25 percent of buyers in the suburbs cited schools as an important factor in their buying decision. But in urban areas, only 12 percent of buyers ranked schools high on their list of priorities. Shopping, recreation and entertainment proved more important. In resort areas, meanwhile, only 8 percent of buyers ranked schools high on their list.

"There are only two places we have found school values going out the window," said Bainbridge. One is beach property and the other is what he calls "historically preserved areas," urban areas that are being redeveloped.

"The people in these areas either don't have children or are depending on private schools," he said.

REAL ESTATE: The school-real estate values connection

By Bill Barksdale

It’s an interesting, yet logical, phenomenon that a strong local school system increases and supports stronger real estate values. Many homebuyers ask their agent about the quality of the local schools. Even buyers who don’t have school-age children want to know about local schools because it may indicate the availability of a competent, disciplined work force and can indicate lower crime statistics if young people are treated with respect by investment in their education.

Arts education often marginalized and the first to have funds cut, not only provides a productive way for young people to spend their time - but more importantly, it teaches critical thinking skills that are essential in business. The creative process helps people to think outside of the box. This is one the most important skills of any good entrepreneur in creating new businesses and finding solutions to problems.

The better the educational environment of a community, the more likely an employer will choose to locate their business in that community with well paying jobs. Those jobs create opportunity for employees to afford to purchase a home, or improve the home they already own. In addition, people who receive a good education locally are more likely to remain in the community and improve it. As a homeowner, they acquire one of the most important assets possible toward financial security.

THE VALUE SCHOOLS BRING TO A COMMUNITY

By Wendell Cayton

I met with a client last year that was concerned about the state of the local economy and how it would impact his young family. We discussed a number of options including selling his expensive home and relocating to a less expensive environment. To my surprise, that is exactly what he and his family did - sold the home and moved to a community in central California.

When I asked why there, he said one word - schools. His wife, a former CIO in a large San Francisco firm and now a stay-at-home mom, used the Internet to research California schools. She found, arguably the best California school system for her young boys.

When the family visited the community, they were impressed by the level and quality of instruction; the clean, well-maintained schools; the willingness of the community to fund education; and the active involvement of the parents. They found that teachers were excited about their profession and were paid enough to afford to live above the poverty level in the community.

This is but one anecdotal story on the value schools bring to the community. Any realtor with an ounce of experience will tell you that good schools enhance real estate values.

Good schools upgrade the quality of life for the entire community making it a more desirable place to live. Good schools cut down on crime. And good schools give their graduates a reason to want to return and make a contribution to progress in their community.

Most families have three financial goals: educate their children, pay their taxes and provide for a comfortable retirement.

Education and retirement are inextricably linked. The archenemy of retirement is inflation. A well-educated and productive workforce keeps inflation down. Retirement dollars go farther in a low inflationary environment.

Many retirement plans are built around extracting value from real estate, either through selling and downsizing or some form of equity withdrawal, such as reverse mortgages.

A survey conducted a few years ago by the Wisconsin-based management consulting firm Runzheimer International and SchoolMatch, a school information and counseling service, found that good school districts equate to high home-market value.

Their research studied over 16,000 school districts nationwide and correlated property values to the quality of the school as measured by pupil performance on scholarship exams. Their findings conclusively supported the assumptions that good schools add to property values.

Supporting good education takes state tax dollars and more. The State of California funds public schools at a level much less than the average funding for the 50 States in the Union. Thus, to overcome this shortfall and to build good schools in an arguably expensive high cost-of-living area, it takes a parcel tax, and in the event that does not come to fruition, then schools, community, business, parents, and civic minded volunteers need to find alternate ways to improve the financial basis of our schools. Unless there is a continuous investment to improve our schools, over the long run the quality of life will be lowered and the best and brightest will leave for better education and not return to contribute.

"In other words, an investment in local schools can be the most important investment you make in your home!"

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The opinions expressed are those of Wendell Cayton, a registered investment advisor in the states of California and Washington, and not those of any company with whom he is associated. He may be contacted at wma@wealth-mgt.net.
Reprinted with permission from Wendell Cayton -2007.