Gibbons & Machin (2006): Paying for Primary Schools

Overview

"Paying for Primary Schools: Admission Constraints, School Popularity or Congestion?" by Stephen Gibbons (London School of Economics) and Stephen Machin (University College London and LSE Centre for Economic Performance) was published in The Economic Journal 116(510): C77–C92 (March 2006).[1] Using English house-price and school-performance data, the authors find that most primary schools carry little or no price premium, but the small minority of oversubscribed, top-performing schools command a large one: at 2004 prices, moving from an average dwelling outside a weak-performing school's catchment to one outside a top, over-subscribed school in London and the South East cost roughly £61,000 more — about 26% of the mean property price in that region at the time.[1] A ten-percentage-point improvement in a school's age-11 test-score performance was associated with at least a 3% rise in the price of homes immediately next to it.[1]

The paper is part of a broader Gibbons–Machin research program on how local public-service quality capitalizes into house prices, alongside their work on transit access (see Gibbons & Machin: Rail Access). Because school quality is a non-rival local amenity tied to a fixed physical catchment, the finding is a clean illustration of how a purely public good — a good school, funded and staffed by the state — gets capitalized almost entirely into the price of nearby land, with families bidding up the cost of a specific address rather than the school itself.

See Also

• Gibbons & Machin: Rail Access — the companion study by the same authors on transit capitalization
• Public Investment Capitalizes Into Nearby Land Values — the outcome claim this evidence supports
• Tax Capitalization — the general mechanism at work
• Land Value Capture — the policy implication: if school quality raises land value, land-based instruments can recover some of that value for the public

Sources

1. Stephen Gibbons & Stephen Machin (2006), "Paying for Primary Schools: Admission Constraints, School Popularity or Congestion?," The Economic Journal 116(510): C77–C92. DOI — used for authorship, venue, and the £61,000 / 26%-of-mean-price and 3%-per-10-points findings. The figures were verified verbatim this session against the freely available CEE/LSE working-paper version (CEE Discussion Paper 42, December 2004, identical content): "A ten-percentage point improvement in the 'league-table' performance (at age 11, Key Stage 2) adds at least 3 per cent to the price of properties located next to the school," and "parents can expect a move from an average dwelling outside a weak school, to one outside a top over-subscribed school, to cost around £61000 (26 per cent of the mean property price in London and the South East in Apr-Jun 2004)." Free LSE working-paper PDF
2. Fred Harrison, Ricardo's Law: House Prices and the Great Tax Clawback Scam (Shepheard-Walwyn, 2006), Ch. 10.4 — used for the discovery context; Harrison cites this paper as evidence that the value of public services (schools) capitalizes into house/land prices. Book page