Entrance opportunity vs. academic performance: unpacking the nonlinear capitalization effects of multidimensional school qualities on housing sales and rental prices

Lirong Hu and Shenjing He ()
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Lirong Hu: The University of Hong Kong
Shenjing He: The University of Hong Kong

Palgrave Communications, 2024, vol. 11, issue 1, 1-13

Abstract: Abstract It is widely documented that school quality has a capitalization effect on housing prices. However, existing literature has commonly reported a linear relationship between housing sales prices and the academic performance of nearby schools. This study challenges this prevalent understanding by examining how the entrance opportunity as an integral part of school quality affects both housing sales prices and housing rental prices, in response to the newly adopted point-based school enrolment policy in China whereby tenants are allowed to access local public schools but with fewer opportunities compared to homeowners. Employing machine learning algorithms, this study identifies which key school indicators and what ranges of these indicators have significant impacts on different housing sales and rental price segments in Shenzhen, China. Our results reveal that housing rental prices, particularly in the lower-priced segment, are more determined by the entrance opportunity than the academic performance, while the latter is the most important factor influencing housing sales prices. The nonlinear capitalization effect suggests that tenants and homebuyers are willing to pay more for school quality increases only within specific ranges, namely, from median to a relatively high level of school quality. These findings contribute to a more nuanced and updated understanding of the education capitalization effect and thus inform more inclusive and equitable urban planning and governance.

Date: 2024
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DOI: 10.1057/s41599-024-03728-5

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