The housing downturn that began in 2006 has produced an array of negative economic impacts. Household wealth has been destroyed, construction, real estate and banking jobs have been lost in large numbers, many have been forced from their homes, real-estate related tax revenues have plummeted and government deficits have ballooned.
But one of the positive aspects of the downturn is that it made the value of good schools that much more obvious. That’s because communities with reputations for good schools suffered far less property value declines than adjacent areas. For instance, in Irvine, California, which often receives national attention for the quality of its schools, average home price per square foot has declined about 18 percent since its 2006 peak. But prices in the greater metro area surrounding Irvine have fallen 33 percent. The same is true for Edina, Minnesota, where prices per square foot are down about 14 percent since their peak versus 27 percent for the greater Minneapolis area. And in the town of Andover, Massachusetts, known for its brain power, prices are down 4 percent versus more than 16 percent for the Boston metro division.
I am not convinced that school quality has a statistically significant impact on the mitigation of falling house prices. Irvine California is a unique case. Asian immigrants [mostly East Asian] in California tend to move into areas with small local school districts instead of large urban centers with unified districts. This is because parents can pressure these schools to offer as many AP courses as possible and have extra-curricular activities, such as orchestra and math league. The Asian population of Irvine is over 30% - compared to 13.6% for all of Orange County .
Within the city of Irvine , there are 5 high schools. Four of these schools [Irvine , Northwood, University, and Woodbridge] are rated “5 Star” by Schooldigger.com. Creekside is rated as “1 Star”. However, when we look at Trulia’s data for the most recent year-over-year change in price per square foot, using the school’s zip code as a proxy for its “catchment” area, the Creekside neighborhood - in spite of being the home of the worst school in Irvine – appreciated 7.3% and University appreciated a tiny +0.6%. The other schools’ [all rated as “5 Star”] catchment areas declined in value – Irvine -2.2%, Northwood -1.8%, and Woodbridge -2.2%.
If we look at a large school district, let’s take Baltimore as an example, the impact of school quality on real estate prices does not appear to be very significant. It we look at the ratings of Baltimore’s 35 public [and one charter public] high schools and, once again, use the most recent year-over-year change in price per square foot, using the school’s zip code as a proxy for its “catchment” area, the correlation coefficient is about 0.45, which is weak.