Monday, September 5, 2011

Realtors should love school spending

In the most recent Wisconsin gubernatorial election, Realtors and homebuilders were the leading campaign contributors to Scott Walker. As governor, Walker has shown hostility toward public education in general and school teachers in particular.  If one were to analyze what ails Wisconsin, public education would not rise to the top of the list, because Wisconsin has among the highest high school graduation rates in the country (or conversely. among the lowest drop-out rates), along with strong SAT and ACT scores.  Milwaukee public schools are another matter, but somehow I do not think the school children of Milwaukee are among the top of Governor Walker's concerns.

Beyond all this, however, it puzzles me as to why real estate people would support someone hostile to public education.  There is a very long literature that shows that spending on schools produces higher property values, particularly in the suburbs that are the places where Realtors and homebuilders make most of their money.  Lisa Barrow and Cecilia Rouse:

In this paper we use a 'market-based' approach to examine whether increased school expenditures are valued by potential residents and whether the current level of public school provision is inefficient. We do so by employing an instrumental variables strategy to estimate the effect of state education aid on residential property values. We find evidence that, on net, additional state aid is valued by potential residents and that school districts do not appear to overspend on education. We also find that school districts may overspend in areas in which residents are poor or less educated, in large districts, and in districts with higher shares of rental property. One interpretation of these results is that increased competition has the potential to reduce overspending on public schools in some areas.
A money quote from the NBER digest on the paper:

… A $1.00 increase in per pupil state aid increases aggregate per pupil housing values by about $20.00, indicating that potential residents value education expenditure."

The Barrow and Rouse paper are not alone in their findings: starting with Wally Oates' seminal 1969 paper through Hilber and Mayer's recent work, the empirical literature finds that school expenditures produce higher property values.

Wisconsin's economy has real problems, among which is a startling poor culture of entrepeneurship: if one looks at venture capital, it ranks very poorly.  As such, the children that it educates well leave for other states to find opportunity (despite the stellar performance of its schools, its adult labor force is below average in share of workers with a college degree).  But to attack one of the things the state does well--public education--makes no sense.   And for Realtors to abet an attack that diminishes their own earning power makes even less sense.

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