The Value of School Quality during a Pandemic

Abstract

The COVID-19 pandemic transformed the everyday life of U.S. families during 2020. This paper examines how the dramatic changes to schooling during the COVID-19 pandemic impacted the capitalization of established good schools into home prices in the Las Vegas urban area. Our findings show evidence that the pandemic changes negatively impacted the capitalization of school compared to the pre-pandemic period. We provide hypotheses tests for the potential mechanisms behind this effect. We find that the estimated pandemic effect was driven by the combination of a strong housing demand and a more elastic housing supply during the pandemic period. We estimate a flexible hedonic specification which accounts for unobserved neighborhood quality using a combination of spatial and temporal neighborhood fixed effects. Our estimates account for the spatial distribution in COVID-19 cases, school peer effects, alternative school choices and changes in the housing demand and supply over the pandemic period. Overall, the results tend to suggest that the changes took place during the COVID-19 pandemic adversely affected homebuyers’ preferences for neighborhood public schools.

Keywords:

• COVID-19
• hedonic analysis
• housing market
• school quality capitalization

JEL CODES:

• R1
• R3

Notes

1 Also, Liu and Smith (2023) show that changes in school attendance boundaries can lead to market-driven bidding wars in the housing market.

2 Source: Nevada Regional Economic Analysis Project (nevada.reaproject.org).

3 The Nation’s Report Card (www.nationsreportcard.gov).

4 Only Montana and Wyoming did not close or recommend closing.

5 National enrollment data were obtained from the NCES Report on the Conditions of Education 2022. Nevada data were obtained from the Nevada Department of Education Datacenter.

6 Charter schools and private schools are other viable options that parents could be considering. However, data from the NCES shows charter school rates had been steadily on the rise even before the pandemic, from 2009 to 2019. NCES data also shows that private school enrollment rates have remained roughly the same between 2009 and 2019. Data from 2020 and after are not yet available for private school and charter school enrollment.

7 This argument pertains to the established reputation of a good school since school performance measures were not available during the pandemic in 2020.

8 Source: Nevada Regional Economic Analysis Project (nevada.reaproject.org).

9 www.nevadareportcard.nv.gov

10 We perform robustness checks for our empirical results with respect to alternative constructions of the school quality measure and report them in the results section.

11 There are 208 elementary schools and 71 zip codes in the study sample, which means an average of 3 elementary schools per zip code area. By contrast, the study sample has 569 census tracts.

12 A few studies have used instrumental variables (IV) methods (Downes & Zabel, 2002; Gibbons & Machin, 2009) while a few other studies have used repeat sales transactions on individual houses (Figlio & Lucas, 2004; Ries & Somerville, 2010). The repeat-sales approach also suffers from a sample attrition issue, similar to the school boundary fixed effects approach, which may violate the hedonic extent of the market. Another issue with repeat-sales is that they may be dominated by flipped homes in the Las Vegas market.

13 We are grateful to an anonymous reviewer for suggesting this approach.