School Labels & Housing Values: Potential consequences of NJDOE’s new arbitrary & capricious school ratings

Posted on September 27, 2012

There exists relatively broad agreement in the empirical literature that perceived quality of local public goods and services – including local public schools – influences significantly the value – as represented in demand/sales prices – of residential property. In other words – perceived school quality affects housing prices and housing values. All else equal, one pays a premium to live in a school district or attendance zone within a district that is associated with a “good” school.

Indeed this “capitalization” of school quality (perceived or real) in home values is at the root of much of the disparity underlying highly residentially segregated state education systems. It’s a long run, complex chicken-egg cycle sort of thing. Some communities have more which allows them to spend more… to improve perceived quality… and capitalize that value into their homes/property values, increasing the town’s ability to raise revenue further, and increasing barriers to entry for families with lower income.

Realtors, the real estate industry and state and local publications like New Jersey monthly and national publications like Newsweek and U.S. News drool over oversimplified characterizations of good and bad schools. As trivial as this stuff may seem to many of us, it is consequential, or at least can be.

Beyond magazine ratings, state school rating schemes have been shown be consequential for home values. The key is that summary type ratings, broad classifications or grades – ACCURATELY REFLECTING QUALITY OR NOT – seem to have the most significant impact. For example, in one recent study specifically evaluating post-NCLB classification schemes & other metrics, authors found that “Results show that while all school quality measures tested have some explanatory power, school district ratings and performance index, which are comprehensive measures of school quality, are the most appropriate measures and are readily capitalized into housing prices.”[1] In one of the better known studies on this topic, David Figlio evaluated the influence of Florida’s letter grading system on home values, finding:

This paper provides the first evidence of the effects of school grade assignment on the housing market. Our results suggest that the housing market responds significantly to the new information about schools provided by these “school report cards,” even when taking into consideration the test scores or other variables used to construct these same grades. These results suggest that innocuous-seeming school classifications may have large distributional implications, and that policy-makers should exercise caution when classifying schools.

Now, the caveat to Figlio’s findings is the initial shock on housing prices of revealed grades may fade with time.

These findings raise significant questions about the potential impact on housing values located in attendance boundaries of schools granted these new labels by state agencies, in accordance with their NCLB waiver applications.  In their waiver applications state agencies were (seemingly) under the gun to find ways to classify as problem schools and/or failing schools, not exclusively poor minority schools in the inner city. Indeed, many set out to make poor, minority schools their primary target.  As I’ve shown in recent posts on New York and New Jersey, states did indeed classify as failing schools largely those schools that are predominantly poor, predominantly minority and in the inner city.

But, in their effort to marginally diversify their “bad” schools list, states also proposed achievement gap metrics and subgroup metrics to be used for identifying “other” more diverse and less poor schools for disruptive state intervention.  Most of these schools New Jersey ended up being classified as “focus” schools, or “we’re watching you!” schools and we’re going to push interventions on you through our regional achievement centers.  Here’s the list of “focus” schools in generally non-low-income communities (middle and upper income) in New Jersey:

Table 1. Focus Schools in Non-Low-Income Districts

A number of “focus” schools occur along the Northeast Corridor around Middlesex County. This is particularly true of “focus” schools in non-low-income (lighter blue) districts.

Figure 1. Locations of Focus, Priority and Reward Schools

All of these schools achieved their “focus” status by having large achievement gaps between two groups either by race, language proficiency or poverty (or disability?… no detail is provided!), rather than by low average or overall performance. Many are middle schools, in part because middle schools serve as a funneling point within mid-sized suburban districts, where children from neighborhood schools first come together in a single location (or perhaps two locations), creating sufficient subgroup sample sizes for calculating gaps.

Notably, a school can only have a measurable achievement gap between ethnic groups if it has at least 30 tested students in each group!  So really, most of the “focus” schools in middle and upper middle class New Jersey districts are middle schools in more diverse districts.

Far fewer of the more affluent schools in the state even have at least 30 members of disadvantaged minority groups taking state assessments in a given year! As such, racial achievement gaps cannot even be calculated for these districts.

Yes, gaps are a problem… but these measures… and resultant classifications are a twisted combination of ignorant and arbitrary.

Ignorant, arbitrary or otherwise, these classifications may have significant consequences for home values. And homeowners in these districts (and those in poor urban “priority” school zones) should be rightfully outraged at this potentially highly consequential abuse of data. [and of course those in "reward" school zones can quietly basque in the glory of their unearned accolades]

After all, it is the broad labeling that matters more than precise and nuanced characterizations of actual schooling quality!

Figure 3 shows the average proficiency rates of the “reward” schools and “focus” schools in Middlesex County – focusing only on those schools with fewer than 20% of children qualified for free lunch. That is, lower poverty schools.  In terms of overall proficiency, the “focus” schools fit reasonably into the broader mix of schools in Middlesex County.

My intent here is certainly not to downplay the gaps that may persist in these schools, though it’s really important to acknowledge that you can only even measure that gap if diversity exists to begin with. My point in this graph and post in general is that the state has created a labeling system misuses measures that weren’t very good to begin with to create arbitrary and capricious school labels that may have real and substantial consequence for home values. In many cases here, districts that are home to a focus school are immediately adjacent to districts that are home to ‘reward’ schools (an equally unearned label!).

Figure 3.

The kicker here is that even if the public were to become wise to the questionable veracity of these labels, that state has used this labeling system in the context of granting itself near unilateral authority to exercise substantial control over the operations of these schools [an authority which may not actually exist!].

So, it’s not just about the labels – which may be entirely meaningless – but it’s also about – much more about – a substantial threat to local governance of those schools. Now, I’ll admit that I have mixed feelings about “local governance,” because it is often local governance that reinforces disparities across children and schools.

But, that said, the state’s choice to use these labels quite explicitly as a threat to local governance – rather than merely as a “label” to increase awareness and encourage increased local accountability – may increase the consequences for local home values. That is, prospective home buyers may be more likely to avoid purchasing homes in neighborhoods or districts where they perceive that they may lose control to the state of their schools and this effect may be much greater than the effect of a negative label alone. Further, it’s entirely possible that in these middle class communities otherwise perceived as having pretty good schools, that public perception would be that proposed state interventions are more likely to make the schools worse than better (in addition to the threat of intervention itself).

Indeed, these are empirical questions and ones I hope to explore over the next few years as annual housing sales data are released.

Gap measurement in NJ: Largest Within-School Gaps: schools with the largest in-school proficiency gap between the highest-performing subgroup and the combined proficiency of the two lowest-performing subgroups. Schools in this category have a proficiency gap between these subgroups of 43.5 percentage points or higher. see:

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