Do Public Schools Distort the Housing Market?

Do Public Schools Distort the Housing Market?
Do Public Schools Distort the Housing Market?

Recently, during a lecture in one of my classes the professor brought something to our attention that I found quite interesting; “Public schools distort the housing market.”

Being an economics major at a school that favors the free-enterprise system and utilizes modern economic theory, it has become second nature to associate market failures with the secondary effects of government intervention. This class in particular is based on the novel, Free to Choose, written by the 1976 Nobel Prize in Economics recipient, Milton Friedman alongside his wife, Rose Friedman. The book was later made into a PBS television series.

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It is evident that everything we do has opportunity costs, and every action has some type of secondary effect. Though, some might be more obvious than others. For example, the more obvious would be something like smoking causes cancer, or from an economics standpoint, smoking creates fumes in which lead to negative externalities that harm the individual and third party participants also effected by the smoker (second hand smoke).

The less obvious in this instance is the presence of public schools within a district therefore creates distortions in the market for real estate.

When searching for a home, one of the first questions asked is, “What school district is this home zoned?” The answer to this question can and will contribute to the decision of the home-buyer.

Photo: koam-tv
Photo: Koam-TV

Neighborhoods and homes that once may have seemed ideal to the buyer will be neglected in the instance of a rather ill performing school district, which we will refer to as “Community A”. The poor schools in the district will cause the buyers to look elsewhere, and artificially create a demand in “Community A” for individuals who either have no children and/or are putting their children in private schooling.

Though this assumption is in theory, it makes you contemplate how closely correlated all markets are and the secondary effects that arise from everything we experience and on a day-to-day basis, this correlation is viewed as the theory of individual preferences by economists.

Preferences are the ordering of alternatives based on their relative utility, a process that results in an optimal “choice”. They are everywhere and they define who we are and why do the things that we do.

In many cases, government restricts these preferences, especially in the instance of public education. It is left in the hands of bureaucrats to allocate funding, capacity requirements, and performance levels of our children. This brings up a few questions: Are the secondary effects of this system restricting prosperity in neighborhoods? Are public-schooling zones indirectly influencing the depreciation of property?

Photo: Miami Talks Real Estate
Photo: Miami Talks Real Estate

These are just some of the arguments that come into question when deciding if a voucher system in public schools would be more efficient than the current system. Would the preferences of individuals be optimized with the voucher system?

Will the couple that once voided the possibility of buying in “Community A”, now be more likely to move there with the initiation of a voucher system? Though there is no hard yes or no answer to any of these questions, it does create an interesting platform for debate.

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Senior at Florida State University, majoring in Economics with a minor in business, concentrating in Markets and Institutions.

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