Association for Public Policy Analysis & Management

Between 1990 and 2011, school finance reforms in 26 states substantially increased average real spending per student, particularly in low income school districts. I use the quasi-random implementation of these reforms to estimate causal effects on home prices and neighborhood demographics. Theory predicts that increased state revenues will lead to increased home prices and greater socioeconomic integration, as higher income households find it beneficial to relocate to lower income districts. Using the Zillow Home Value Index (ZHVI) and HMDA loan application records, I find that reforms led to higher home values in low relative to high income school districts, but had no effect on mortgage applicant income. Event study results show that home price effects persisted ten years after the reform date, and were driven by reforms that led to larger redistribution of capital spending.

I draw three main conclusions from the results. First, school finance reforms led to persistent redistribution of property wealth across districts. This redistribution may either benefit or harm low income households, depending on whether they are home owners or renters. Second, home price effects of the reforms were contingent on how districts allocated state revenue. While increases in capital spending were associated with higher home values, the same is not true for instructional spending. Finally, the results show no evidence of significant socioeconomic integration across districts. This result bears further study, and suggests that redistribution of public spending may have limited ability to affect household location choices.