The Effect of School Quality on House Prices: Evidence from Shanghai, China

Understanding the housing price premium of high-quality education could be important for improving our knowledge on the formation of housing prices and potential consequences of educational resources misallocation. This paper estimates the housing price premium of high-quality primary schools in Shanghai, China. Applying the hedonic price and paired difference models with a boundary fixed effect to the house resale transaction data from January to October 2019, the study found that the housing price premium of high-quality primary school was approximately 15.6%. Moreover, the price premium of small houses was larger than that of large houses. The results suggest that high-quality education has a significant capitalization effect on housing values. This implies that the policy of restricting one student to have a seat in only one particular school within the zoning area would lead to greater education inequality and future policies should consider this effect.