Working Paper: NBER ID: w22668
Authors: Stuart Gabriel; Owen Hearey; Matthew E. Kahn; Ryan K. Vaughn
Abstract: Over the years 2000 to 2013, the Los Angeles real estate market featured a boom, a bust, and then another boom. We use this variation to test how the hedonic valuation of school quality varies over the business cycle. Following Black (1999), we exploit a regression discontinuity design at elementary school attendance boundaries to test for how the implicit price of school quality changes. We find that the capitalization of school quality is counter-cyclical. While good schools always command a price premium, this premium grows during the bust. Possible mechanisms for these findings include consumers "trading down" from private to public schools during contractions as well as the effects of reduced household mobility during downturns in raising the value of the public school option.
Keywords: Public School Quality; Hedonic Valuation; Business Cycle; Real Estate Market
JEL Codes: R21; R3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Homeowners trading down from private to public schools (R21) | Valuation of public school quality (I21) |
| Reduced household mobility during downturns (R20) | Valuation of public school quality (I21) |
| Perception of higher return to school quality during downturns (D29) | Valuation of public school quality (I21) |
| Gentrification in lower-quality school areas during booms (R23) | Housing prices (R31) |
| Public school quality (I21) | Housing prices (R31) |
| Economic downturns (E32) | Valuation of public school quality (I21) |