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Study: overrides boost home values

Posted July 7, 2010 07:11 PM

By Barry Bluestone and Anna Gartsman | June 24, 2010

LAST MONTH, Hull residents rejected for the second year in a row a Prop. 2½ override to help fund the public schools. Voters were not alone in trying to limit their property taxes. Since 2000, there have been 389 override attempts throughout Massachusetts aimed at providing more money for public education. Residents rejected 165 of them.

If passed in Hull, the extra funding would have been used to restore advanced placement classes in the town’s high school, restore language classes in its middle school, and restore funding for sports activities and theater programs. For students and their parents, this was a crushing blow. But most families in Hull do not have a child in the town’s public schools and therefore turning down the override could be seen as a rational economic decision. Why pay to educate someone else’s children?

The standard response, of course, is that educating children is everyone’s business. But it turns out that even those with no children in the public schools likely made a major financial blunder when they voted no on the override.

The reason is that neighborhood home values depend on the perceived quality of local public schools. When looking for a new home, parents with school-age children often choose locations based on whether they believe their kids can get a good education. Real estate agents often play up SAT scores and per student school spending as indicators of local school quality. As a result, demand for homes is often higher in municipalities perceived to have good schools. Other things being equal, where demand is higher, prices are higher.

We decided to test this theory by simulating the impact on home values of a change in school spending due to a Prop. 2½ override, controlling for other factors. We obtained data on housing values in 2005, the change in housing values between 2005 and 2010, and two measures of perceived school quality: school-wide SAT scores and per pupil expenditures. We found complete data for 176 of the 351 cities and towns in the Commonwealth.

According to our analysis, which controlled for initial home value in 2005, a municipality with SAT scores and per pupil spending levels 20 percent higher than average experienced a 24 percent increase in nominal home value between 2005 and 2010. In contrast, a municipality with SAT scores and per pupil spending 20 percent below average experienced a loss in home value of 11 percent.

So, how much difference would the passage of the Hull override have potentially meant for home values in that community? Hull’s 2005 average home value of $366,343 was near the mean for the communities in our study. The average SAT score in the Hull public schools was 961 compared with an average of 1047 for all the study communities. Average per pupil expenditure in Hull was $11,491, some $1,500 higher than average. Based on our home value model, the predicted increase in home values in Hull between 2005 and 2010 was 3.85 percent.

Now what would likely have happened to the average home value in Hull if the recent proposed $1.9 million override had been passed back in 2005? This tax increase would have cost the average homeowner in Hull $506 per year. Over five years, it would have totaled $2,530. However, that tax increase would have resulted in an additional $1,442 spent per pupil. This increase would result in a predicted increase in home value of 6.57 percent rather than the increase of 3.85 percent. The difference between the two predicted values results in an average increase in home value in Hull of $9,970.

If we had data on all 351 Massachusetts municipalities, the exact impact of the simulated override might vary, but the overall results would be similar. By not passing the override, homeowners in Hull would save on their property taxes over the next five years. But for every tax dollar they save, Hull homeowners would likely forfeit close to four dollars in home value when they sell their homes.

Before pulling the lever in the voting booth, residents across Massachusetts considering a Prop 2½ override to help fund local schools might be wise to consider whether a no vote is being penny-wise but pound-foolish.

Barry Bluestone is dean of the School of Public Policy and Urban Affairs at Northeastern University. Anna Gartsman is a Ph.D. student at Northeastern.

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