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How Exam Results Regulate Housing Prices

Real estate near good schools is valued higher.
STUDY AUTHOR:
Dmitry Chugunov, Postgraduate Student, HSE Institute of Education.
 

Apartment prices in neighbourhoods around schools showing good student performance in the Unified State Exam (USE) stand at almost 3% higher compared to neighbourhoods without such schools. In Moscow, parents are prepared to pay an average of 330,000 rubles extra for housing located near a good school, according to Chugunov's paper 'Effects of School Performance on Urban Real Estate Prices'*.

Why Realtors Need USE Scores

In Russia, secondary schools are required to admit children from their immediate neighbourhood. In Moscow, some 70% of children attend a school near their home and 84% walk to school, taking 12 minutes on average.

Proximity, however, is not as important to parents as the quality of the school, and they are prepared to invest in a higher quality of education either by spending time and money in taking the child to their chosen school or by purchasing an apartment near such a school.

Particularly valued today are schools whose students score high in the USE, which can guarantee admission to a university. "Families pick schools by comparing student USE performance and are prepared to pay more for a home in a neighbourhood assigned to a certain school," Chugunov explains.

The researcher measured school performance using an index based on USE scores in mathematics and Russian. He found that an increase in the average USE score by seven points (i.e. one standard deviation) can increase the value of housing in the school's neighbourhood by 2.9% (376,000 rubles at 2014 prices).

This finding from Moscow is consistent with those reported in big cities of Australia, the UK, the Netherlands, France, the US, and China. For example, the contribution of school performance to differences in housing prices stands at 3.5% in Australia, 1.4% to 2.4% in France, 2% to 5.4% in China, and 1% to 14% in the US.

Far-reaching Effects of Nearby Schools

Schools are a major factor in determining real estate prices in many developed countries. A family in the UK may first pick the right school for their child and only then look for a home nearby. In an effort to level off intra-urban differences, local authorities in the US have been opening good schools in disadvantaged neighbourhoods to attract wealthy residents.

In Russia, the importance of a good school in the neighbourhood is confirmed by content analysis of real estate ads. Compared to other infrastructure items, such as health clinics, kindergartens, shopping centres, sports facilities, banks, etc., schools are mentioned much more often — in 92.7% of all ads.

The quality of secondary schooling is important for accessing higher education. Today, the chances of Moscow students qualifying for state-subsidised university tuition are fairly slim and require an average USE score of 80 or higher. "In a number of Moscow schools today, just 10% of graduates are able to score more than 80 points in the USE. Therefore, people are willing to pay for access to good schools," according to Chugunov.

Findings Can Help Parents

The Moscow school district system has been criticised and prompted a number of lawsuits from parents. Chugonov's research suggests that the situation can be improved by reassigning school district boundaries according to school performance and parents' willingness to pay for good education.

Since each school is required to admit students from its district, one way to deal with differences in demand could be to expand the areas assigned to less popular schools thus ensuring their full occupancy and to narrow down the areas served by more popular schools, thus allowing them to reserve a portion (e.g. one-third) of available places for competitive admission of students from other neighbourhoods.

The study was conducted in the North-Western Administrative District of Moscow whose area and population are comparable to those of a city with a million inhabitants. The author did not assess the possibility of extrapolating his findings to other Russian cities and regions; however, his assessment tool can be used in any community where some schools perform better than others.

*The study was conducted using data from a period of relative stability in the residential real estate market in Moscow between 2011 and 2014. All findings relate to this period.

Other data used in the study include:

  • USE scores in 75 state and municipal general schools in the North-Western Administrative District (SZAO) of Moscow. Data source: SZAO Department of Education;
  • offers of apartments for sale in SZAO neighbourhoods assigned to specific schools. Data source: real estate agency websites (www.cian.ru, www.sob.ru, http://kvartira.miel.ru/ etc.) Data collection period: 2011 to 2014. Total number of observations: 906 apartments;
  • analytical reviews of the real estate market in Russia and Moscow published by leading real estate companies.
January 24, 2017