Pay for elite private schools or pay for higher housing prices? Evidence from an exogenous policy shock

Abstract

This study provides the first direct empirical evidence on whether private school lottery enrollment program affects school district house prices and residential sorting behaviors. Although the new lottery enrollment policy for private schools in China aims to promote equal and affordable education, it also introduces uncertainty. We assessed the policy impact using the panel data of residential housing transactions from the largest real estate agent in Chengdu during 2018–2020 and controlling for grid-level demographic and economic variables from mobile Internet data. We found that the lottery-based private school enrollment uncertainty leads to a substantial rise in the value of the key and elite school district house (SDH) prices. The house price premiums of the key SDH and elite SDH increased by 2.8% and 7.8% in the post-policy period, respectively. We also observed a significant intensification of residential sorting behavior within the elite public school districts afterwards. These results suggest that parents pay higher house prices when access to quality private schools becomes uncertain.