We are officially well into the month of August and for many households, that means the beginning of a new school year. Families are in the market for new books, bags, pencils, and in some cases, new homes.
A new house also gives the possibility of new a new neighborhood, and in turn, a new school district for your kids. Choosing the right primary school to send your kids to often plays a vital role in deciding where to look for your new home. It is fair to assume that schools with higher rankings create higher competition in their corresponding neighborhoods- but to what degree?
Tiebout Sorting refers to the sorting of households into neighborhoods and communities according to their willingness and ability to pay for local public goods (specifically, tax-supported amenities and services—such as K-12 education— that are provided to residents of a local jurisdiction) (Corcoran, 2014).
In laymen’s terms, the Tiebout framework predicts that households will sort into neighborhoods that best match their preferences for local public goods. This includes access to food, libraries, parks, and other neighborhood amenities. Households that give the most value to the collection of resources that a certain housing district provides will bid the highest value for property in that district.
Applying this concept to the back-to-school fray, households that value school quality the most will tend to cluster and live in locations with better school quality. This causes something called capitalization, which occurs when high quality schools attract households to the area and they bid up the value of the property. The bidding-up of property value will occur in areas where high quality schools are in short supply.
An example of this would be the Roxborough Park neighborhood in Littleton, Colorado. Roxborough Park is located in Douglas County school district, which is known to be one of the top school districts in the nation. According to NeighborhoodScout, Roxborough Park median real estate price is $574,851, which is more expensive than 80.0% of the neighborhoods in Colorado and 86.5% of the neighborhoods in the U.S. As you can see in this map provided by Douglas County, Roxborough Park only has two Douglas County schools available in that district’s neighborhood.
Capitalization may also happen where there is a more rigid supply of housing units available in highly ranked school districts. Cherry Creek school district, for example, is ranked as the second best school district in the Denver area. According to this map from Niche.com, there are very few homes for sale within (or in close proximity to) the Cherry Creek School District limits- and they are priced significantly higher than the homes that are not a part of the same district.
In contrast, places where development can occur fairly easily and where there are a lot of good quality schools will likely have lower school capitalization rates. Colorado Springs is home to Cheyenne Mountain High School, one of the best public schools in the state. According to Realtor.com, there are over 3,100 houses for sale in the Colorado Springs area with a median listing price of $300k at an average of $134 per square foot.
Compare this to our previous example of Cherry Creek in Greenwood Village, where there are just over 500 homes for sale with a median listing price of $470k at an average of $209 per square foot.
The Final Word
We must remember that the quality of public schools is only one of many attributes that determine overall home value. For example, an exceptional private school may attract a similar segment of the market and offset an otherwise average local public school. Other factors that affect housing prices must also be remembered, such as future development plans and food accessibility.
It is important to understand that school rankings matter to most, but not all, housing markets. Do your research, weigh your options, be patient- and, as always, make sure to keep your realtor informed of your needs. Your Castle’s team boasts hundreds of experts in the Colorado real estate market, and we are always here to help guide you in making informed housing decisions.
If you have any tips and tricks to finding the perfect house in the perfect school district, leave your advice in the comments below. We would love to hear from you!