Zone wars

By Eric Crampton 21/07/2014 8

Adrien de Croy, who lives with his family in a home zoned for EGGS and also within the proposed One Tree Hill College zone, understood there was significant pressure on the rolls at AGS and EGGS.

“They can’t really reduce the zones unless there’s an alternative in place, and [the proposed One Tree Hill College zone] basically gives them the opportunity to reduce their zone. We see it as the first step to removing us from the Auckland Grammar and EGGS zones.”

Mr de Croy, whose eldest child is 7, said at this stage his main concern was for the value of their property. A real estate agent had told him a typical premium someone would pay to get into the “double Grammar zone” was about 20 per cent.

Last year the Herald reported one Mt Eden home just 750m outside the area went for $516,000 less than a house up the road, valued the same but situated 250m within the zone.

One Tree Hill College principal Nick Coughlan said he understood such concerns, but they were unfounded.

The zone, and any overlaps, was informed by the need to not divide areas and homes around contributing schools. There was no intention to realign zones in the future, Mr Coughlan said.

We can do better than this, though, to gauge the effects of school zoning. For that, we turn to Waikato’s John Gibson and Geua Boe-Gibson. They’ve estimated the effects of school boundaries in Christchurch pre-quake. From their abstract:

School attendance boundaries are a contentious issue in New Zealand, and have been relaxed and re-imposed depending upon political sentiment. Critics contend that a supposedly egalitarian state school system becomes one of selection by mortgage, with the value of ‘free’ schools capitalized into property prices. Attendance boundaries restrict the schooling opportunity set facing a student, who typically is unable to study at nearby high-performing schools if they live outside their boundary. We relate schooling opportunity sets to sales prices of over 8000 houses in Christchurch, controlling for dwelling attributes, neighborhood characteristics and geographic accessibility to a wide range of services. Our model explains over three-quarters of the variation in prices and we use this model to predict property prices if there were no attendance boundaries. Abolishing boundaries expands most schooling opportunity sets and predicted house prices generally rise. But prices would fall in some higher income neighborhoods with highly educated residents, who are likely to oppose reform of school attendance boundaries.

Gibson and Boe-Gibson use a year’s worth of house sales in Christchurch, October ’04 through October ’05, to check the effects of school zones on prices after accounting for land and building area, building age, materials, parking, garage, and whether there was a deck, slope, or view. I hadn’t known that QV data included information on the latter three. Importantly, they link in Census meshblock data on neighbourhood ethnicity, immigrant status, education, and employment, and meshblock crime. Some of the work on school zone effects will confound “good school”  with “seen-as-desirable (ie no rednecks) neighbours”.

They simulate the effects of a standard deviation increase in NCEA Level 1-3 pass rates on median house prices and find that, all else equal, having access to a school with a standard deviation better NCEA pass rate is worth between $14,300 and $19,900 for the median house. This gives a few implications.

First, the market value of policy innovations that improve school quality is very high: a policy that improved NCEA pass rates by a standard deviation is worth about $42 billion.

Second, locking poorer people into poorer schools seems a pretty bad policy. Gibson calls it “selection by mortgage”, and worries it can reduce social mobility especially among minority groups.

Finally, while abolishing school zones would increase the total value of the housing stock because gains to those getting access to better schools exceed losses to those currently sitting on regulatory rents, it’s unlikely to happen because those earning the rents are more effective at protecting turf. While the average goes up in value by about $25,000, houses in preferred zones drop in value by about $20,000. I expect this is an upper-bound estimate as other forms of rationing would have to come in for the better schools in the absence of mechanisms allowing them to grow, and as I’d expect that those with current access would find ways to maintain such access.

Rich people can afford to pick their preferred public schools; poor people get locked into whichever schools service poorer neighbourhoods. The problem is worse in much of North America, where schools are funded from local property taxes rather than from general revenues, ensuring that poor places can’t afford good schools; New Zealand’s decile funding system works to provide equitable funding across schools. But zoning still causes problems.

Gibson and Boe-Gibson conclude:

…the property market becomes the main schooling selection mechanism for New Zealand parents who are ambitious for their children. Even though schools may nominally be ‘free’, students from poorer households face more restricted schooling opportunities than do wealthier students, being constrained through the housing market.

Almost two decades have passed since New Zealand’s brief experiment with relaxing school attendance boundaries in the 1990s. The frequency of reselling houses makes it likely that most home-owners have paid a price for their dwelling that includes the expected value of access (or exclusion) from particular schools. Consequently there will be windfall gains and losses if future policy reform allows a weakening of attendance boundaries and an opening up of school enrolments. Nevertheless, the wide variation in school performance and the contribution of attendance boundaries to reducing social mobility suggests even difficult reform is worthwhile.

I would love to see a replication of this work in Wellington. In particular, I’d love to know the relative magnitudes of school zone and all-source earthquake risk on property values. Is there a bigger difference between moving from Wellington College zone to out-of-zone than from moving from a low-medium quake-risk property to one that will fall off the side of a cliff in an earthquake? I suspect so, but it would be nice to know.

8 Responses to “Zone wars”

  • That was very interesting reading. Compared with when I was at high school in the ’80s, zones are considerably smaller. Auckland is an extreme case (for NZ, at least), but for those who can afford it (& are willing to do so), I would presume that large difference in house prices would be more than adequate to pay for private schooling.

    As you say, options are very limited for those with little money and that can lead to generation effects. In my experience, the facilities at low decile schools are similar, but the ability to attract “good” teachers, is not.

    • Good question.

      Where schools can’t grow to meet increased demand, or where parents with kids in particular schools wish that the school stay no larger than a certain size, some mechanism must enter to ration demand. There are many plausible ones. We don’t use prices, which would have the fee for attending preferred schools set explicitly to clear the market. That’s deemed unfair for poor people, and likely rightly so. Instead we tend to restrict things by setting geographical borders around a school and say that it must serve the kids coming from that area, then can accept additional ones if it has space. This has pretty much the same outcome as charging people money to attend the school, except because it’s worked then into the price of the house rather than an explicit fee for attending the school, people don’t complain about it as much. Other alternatives would have lotteries, or bussing, or would make it easier for well managed schools to expand and for poorly managed ones to contract.

      Fortunately, it’s not all perfectly linked up with income. There are some Decile 10 schools in Wellington with pretty terrible looking ERO reports and Decile 6 ones with rather nice reports, at least for primary schools.

  • So, to put it succinctly, the perceived shortcomings of other providers and the flexible nature of NZ’s enrolment regulations leads to zoning regimes at popular schools – a rationing response to a market failure.

    Which begs a new question – what is the cost of zoning as a response as against the cost of correcting the market failure at source ie improving the perceived quality of all schools?

    I use the term perceived deliberately here…

  • this appears apropo. I haven’t read it all, but it describes the same sort of question set out in the OP.

    Interestingly (and only from reading the first few pages) it seems to imply that the socio-economic standard of the zoned area is more of an influence than the school itself is, and that the two are deeply and inextricably linked in any case ie desirable schools exist in desirable neighbourhoods that would be comparatively expensive regardless of the nature of the school itself.

    Selwyn College is a good case of this – the area surrounding the school is des-res northern slopes of the Auckland bays area and you need a good $mill to enter the game generally. This was the case when Selwyn College was regarded as a deplorable waste of taxpayer funding, and is only marginally moreso now it has redeemed itself.

  • I’d be interested in your comments on the “boundary effect” the study I linked noted. I’m not statistically and analytically smart enough to be sure, but I think they are saying the effects show most markedly in properties that sit either side of a zoning line.

    At least, that would make sense to me – the confounding effect of every other influence would tend to be far less in those comparisons.

    • Hard to say if the confounding effect would be greater or lesser. If folks who really really care about the school but need to be elsewhere move just to the zone’s boundary…