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

Cheshire, P. C. and Sheppard, Stephen Charles (2004) Capitalising the value of free schools : the impact of supply characteristics and uncertainty. The Economic Journal, 114 (499). pp. 397-424. ISSN 0013-0133

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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.

Item Type:	Article
Official URL:	http://www.blackwellpublishing.com/journals/ECOJ
Additional Information:	This is an electronic version of an Article published in the Economic journal 114(499) pp. 397-424 © 2004 Blackwell Publishing on behalf of the Royal Economic Society. The definitive version is available at www.blackwell-synergy.com. LSE has developed LSE Research Online so that users may access research output of the School. Copyright and Moral Rights for the papers on this site are retained by the individual authors and/or other copyright owners. Users may download and/or print one copy of any article(s) in LSE Research Online to facilitate their private study or for non-commercial research. You may not engage in further distribution of the material or use it for any profit-making activities or any commercial gain. You may freely distribute the URL (<http://eprints.lse.ac.uk>) of the LSE Research Online website.
Divisions:	European Institute Geography & Environment
Subjects:	H Social Sciences > HB Economic Theory L Education > L Education (General)
Date Deposited:	22 Jun 2006
Last Modified:	29 Oct 2024 00:45
URI:	http://eprints.lse.ac.uk/id/eprint/567

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