Capitalising the value of free schools: the impact of supply characteristics and uncertainty

Paul Cheshire and Stephen Sheppard

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: There has been a growing literature in both the US (for example Haurin and Brasington 1996, and Black 1999) and the UK (for example Gibbons & Machin, 2003) that estimates the way in which school quality is capitalised into house prices. Cheshire and Sheppard 1995 and 1999 estimated hedonic models in which the quality of the secondary school to which a household was assigned was a significant variable which provided evidence that secondary school quality was being capitalised into the price of houses. In contrast Gibbons and Machin concluded that primary schools were more significant. Each of these analyses is predicated on the assumption that the value of local schools should be reflected in the value of houses. We argue here that this is rather too simple. We should expect variation in the capitalised price of a given school quality at either primary or secondary level according to the elasticity of supply of ‘school quality’ in the local market, the certainty with which that quality can be expected to be maintained over time and the suitability of the dwelling to accommodate children. These factors will vary systematically between and perhaps within cities. This paper explores the sources and the impact of such variations as well as the impact of model specification. The results provide new evidence on the complex and subtle ways in which housing markets capitalise the value of local public goods such as school quality and perhaps most importantly suggest that this is highly non-linear: houses in the catchment areas of only the best state schools command substantial premiums but such capitalised values can be very substantial indeed.

Keywords: JEL classification codes : D12; H4; I2; R5 (search for similar items in EconPapers)
JEL-codes: D12 H4 I2 R5 (search for similar items in EconPapers)
Date: 2004-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (81)

Published in The Economic Journal, December, 2004, 114(499), pp. 397-424. ISSN: 0013-0133

Downloads: (external link)
http://eprints.lse.ac.uk/567/ Open access version. (application/pdf)

Related works:
Journal Article: Capitalising the Value of Free Schools: The Impact of Supply Characteristics and Uncertainty (2004)
Working Paper: Capitalising the Value of Free Schools: The Impact of Supply Characteristics and Uncertainty (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:567

Access Statistics for this paper

More papers in LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library LSE Library Portugal Street London, WC2A 2HD, U.K.. Contact information at EDIRC.
Bibliographic data for series maintained by LSERO Manager ().