Does the housing market react to new information on school quality?

Abstract

Public reporting of school performances is a feature of school accountability systems that are increasingly common across OECD countries. A new kind of school quality indicators were published for the first time in Oslo in November 2005, and received considerable media attention. Jon H. Fiva, a postdoctoral fellow at ESOP, and Lars J. Kirkeb√łen, researcher at Statistics Norway, investigate whether the housing market responded to the previously unknown information. If parents value high quality schools and the school performance indicators provided new information the housing market is expected to react accordingly.

A substantial short term response in housing values is identified, suggesting that parents seem to be willing to pay more to live in catchment areas of better performing schools. Interestingly, a price reversion to pre-publication levels after two to three months is observed. The authors relate this finding to the concept of limited attention, where cognitively-overloaded agents pay attention to only a subset of publicly available information. Agents in the housing market may tend to overweight information signals that are more salient at the expense of information that blends in with the background.

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By Jon Fiva and Lars J. Kirkeb√łen
Published Mar. 23, 2015 11:20 AM - Last modified Jan. 6, 2017 7:35 AM