Skip to main content
Article thumbnail
Location of Repository

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

By P. C. Cheshire and Stephen Charles Sheppard


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

Topics: HB Economic Theory, L Education (General)
Year: 2004
DOI identifier: 10.1111/j.1468-0297.2004.00252.x
OAI identifier:
Provided by: LSE Research Online
Download PDF:
Sorry, we are unable to provide the full text but you may find it at the following location(s):
  • (external link)
  • http://www.blackwellpublishing... (external link)
  • (external link)
  • Suggested articles


    1. (2000). (De)regulation, earnings inequality and social segregation: the interactive role of labour and housing market sorting processes’, A paper given to IBG-RGS Conference,
    2. (1956). A pure theory of local expenditures, doi
    3. (1967). An aggregative model of resource allocation in a metropolitan area’, American Economic Review Papers and Proceedings,
    4. and B.A.Cromwell (2000) How Much is a Neighborhood School worth?, doi
    5. (1999). Development of a microsimulation model for analysing the effects of the planning system housing choices:
    6. (1999). Do Better Schools Matter? Parental Valuation of Elementary Education, doi
    7. (2002). Edge Versus Center: Finding Common Ground in the Capitalization Debate, doi
    8. (1998). Estimating Demand for Housing, Land, and Neighbourhood Characteristics, doi
    9. (1999). Hedonic Analysis of Housing Markets’, doi
    10. (1974). Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition, doi
    11. (2003). Is Comprehensive Education Really Free?: a case study of the effects of secondary school admissions policies on house prices in one local area’, doi
    12. (1964). Location and land use, doi
    13. (1995). On the Price of Land and the Value of Amenities, doi
    14. (1996). School Quality and Real House Prices: Inter- and Intrametropolitan Effects’, doi
    15. (1969). The effects of property taxes and local public services on property values: an empirical study of tax capitalisation and the Tiebout hypothesis, doi
    16. (2001). The Homevoter Hypothesis, doi
    17. (2004). The Impact of School Zoning on Residential House Prices in
    18. (2003). Valuing English primary schools’, doi
    19. (2002). Why Do Households without Children Support Local Public Schools? Linking House Price Capitalization to School Spending’, Federal Reserve Bank of Philadelphia Research Working Paper: doi
    20. (1999). Why Is Central Paris Rich and Downtown Detroit Poor? An Amenity-Based Theory, doi

    To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.