School zone is not the whole story of house price differences

From Friday's New Zealand Herald:

Property buyers seeking houses in zones for certain public schools can expect to pay a premium up to 90.5 per cent on homes in the wider area, new data shows.

Homes.co.nz released data comparing the median regional price to the median price for different school zones to find a "school price premium". The prices are the estimated value calculated by Homes.co.nz and are updated monthly.

The median estimate price for property in the Auckland region is $940,610, according to Homes.co.nz.

Houses zoned for Epsom Girls' Grammar School have a median price of $1.79 million, an increase of 90.5 per cent on the Auckland average.

Now, I don't doubt that the price of homes in the Epsom Girls' Grammar School zone are 90.5 percent higher than the Auckland average. However, it would be wrong to describe this as a "school price premium", because school zone is not the only difference between those houses and the median house in the Auckland region. Houses in good school zones might also be in nicer neighbourhoods, closer to amenities (like the CBD), and with better access to services. All of these neighbourhood-level variables are important for house prices - they also have value for home buyers and home owners. Those variables also vary systematically by neighbourhood and are likely to be correlated with the location of good school zones.

On top of that, houses in those areas might also be larger, have more bedrooms and bathrooms, have better views, and differ on many other house-level dimensions that contribute to house prices. Or they may not. The point is that none of those potential differences are controlled for by the Homes.co.nz analysis.

So, while there is almost certainly a price premium for good school zones (for example, see this 2014 working paper by my colleagues John Gibson and Geua Boe-Gibson), it almost certainly isn't as much as 90.5 percent for the Epsom Girls' Grammar School zone. Once your subtract the value of the good neighbourhood, access to amenities, etc., then the marginal value of the school zone is likely to be much less than that. But at least Homes.co.nz didn't claim that the whole price of the house was the price of living in a good school zone!