Capitalization of secondary school education into property values: A case study in Hong Kong

Investment in quality education in the neighbourhood would be supported by the people as it is often cited as an important attribute that distinguishes a community. A good quality school-network thus can be viewed as a positive amenity that is capitalized into residential property values. The study employs two hedonic models based on two large samples in order to explore the intuition that quality-school environment is capitalized into house prices. Results suggest that there is a significant effect of school-quality on house price. Potential buyers are ready to pay a large premium ranging from 27% to 39% for housing units in the top-tier school-networks. Results further reveal that the extent of capitalization of school quality into house price varies across locations. Results also suggest that property buyers rank variables such as quality school-network higher than such profile issues as age, floor level, and accessibility to transport and shopping. The findings imply that investment in quality education in the neighbourhood enhances the house property value significantly; and well-known elite schools add value to properties and increases in property price. These findings shed light on the market's ability to capitalize quality-school environment into property value though the extent of capitalization may vary across locations.