Capitalization of Public School Quality into Housing Prices: An Empirical Analysis Based on School District Housing for Public Primary Schools in Shanghai

Abstract

This paper examines the capitalization of public school quality into housing prices in the specific context of China’s compulsory education system and “district correspondence enrollment” policy, which stipulates a strict correspondence between residential estates and enrollment into public primary schools. Taking 344 neighborhoods in 7 main districts of Shanghai, China as its sample, this paper carries out detailed descriptive analysis of the data. It also employs the traditional Hedonic Price Model and 2SLS regression method to quantitatively calculate the exact capitalization rates while isolating eight non-school attributes affecting housing prices. It yields the conclusion that for every one-rank improvement in the quality of the corresponding public primary school, the average housing price of a neighborhood is projected to increase by 3.1%, 2.8%, and 1.9%, on the citywide, urban, and suburban scale, respectively. The capitalization effect of public school quality in housing prices is statistically significant, so the status-quo of the distribution of public educational resources in Shanghai is still considerably unequal. In the final section of this paper, the significance of this research is discussed and comprehensive policy recommendations and action plan are given in an attempt to mitigate the school district housing fever and educational inequality.