There goes the neighbourhood

With the drift to private education, parents' preferences for schools are under the microscope. Nearly 35 per cent of Australian school students attend non-government schools and the rate has been steadily rising. A common perception is that many more parents would go private if only they could afford it.

Implicit in the last claim is the notion that when it comes to deciding on their child's education, parents face a clear choice: send your child to an expensive private school or a free public one. But is this characterisation accurate? Are public schools really free; and, if not, how much are parents willing to pay for them?

To find out how much public schools really cost, we recently looked at (pdf 977KB) the relationship between house prices and school quality in Australia for the first time. The answers are illuminating for parents and policy-makers alike.

As any real estate agent will confirm, when parents with school-aged children look for a house to buy, the quality of local public schools is often a key consideration. Just as house prices are higher when they are close to good parks, transport nodes and shops, they should also be higher when the quality of nearby schools is better. The question is: by how much?

To answer this question, we take advantage of the fact that public schools often have attendance zones with clear boundaries.

These boundaries mean that we can compare the price of houses that are close to one another but assigned to different schools. In other words, the only thing that differentiates the houses is the school that the children can attend.

We find that parents are willing to pay significantly more for a house assigned to a better quality public school. To send their children to a high school where the average Universities Admissions Index (also known as an ENTER or TER score) is five points higher, parents are willing to pay an extra 3.5 per cent for their home. This result is in line with previous studies that have analysed schools in Britain and the US.

If you want a house on the right side of the boundary line, you'll have to pay for it. And the differences aren't trivial.

Based on property prices in Canberra, where we draw our data, parents are willing to pay $13,000 extra to secure access to a house assigned to a better public school.

The implications of these findings are far reaching.

For the first time we know exactly how much value Australian parents place on better public education. Our results give the lie to those who suggest that all public schools are created equal. Parents recognise large gaps between non-government schools and are willing to pay to send their children to one public school rather than another.

Knowing the extent to which parents are willing to pay for better education is not only intrinsically important, it also allows policy-makers to make better decisions. It provides the means to rationally assess educational reforms aimed at higher achievement levels, by pitting the estimated costs of these policies against the estimated benefits. For example, a program targeted at improving outcomes in a particular school should raise house prices in its catchment area.

If real estate prices are unaffected, politicians may ask themselves why parents don't think the reforms have improved the school.

Another implication of our findings is that high-quality public education may not be free.

While our results are below the level of private school fees for the typical family, the true cost gap between public and private schooling is smaller than is generally suggested. Not only can poor families not afford access to private schools, they are often also locked out of the best public schools.

Given that education can transform the social and economic opportunities of the underprivileged, this may perpetuate the cycle of intergenerational disadvantage. The possibility of educational exclusion indicates that government funding should be directed towards schools with less talented teachers and substandard facilities to boost the quality of schools in low-income areas.