School district, education quality, and housing price: Evidence from a natural experiment in Hangzhou, China

The capitalization effect of the education quality on housing prices has been widely studied by scholars. This study considers Hangzhou, China as an example, and uses the housing data of 660 communities to establish hedonic price and spatial econometric models. Based on the idea of natural experiment, our study quantitatively assesses the influence of the quality of urban compulsory education on housing prices, and tests whether the related educational policies significantly affect the capitalization effect of education. Results show that the quality of basic educational resources has been capitalized in the surrounding housing prices and primary and secondary schools have significant school district effects. Moreover, “zero school choice” policy strengthens the effect of the school district and exacerbates the behavior of selecting a school by buying a house. Therefore, the simplistic educational policies pursuing equity, such as the “nearby enrollment” policy and “zero school choice” policy, cannot result in actual justice, but may exacerbate the division of residential areas in accordance with income and inequality of educational opportunities. •We investigate the micro effect of educational policies on the housing market in Hangzhou, China.•Spatial hedonic price models are developed to examine capitalization effects of compulsory educational facilities.•Primary and secondary schools have significant school district effects on housing prices.•The “zero school choice” policy strengthens the effect of the school district.•Results reveal the “zero school choice” policy may exacerbate the inequality of educational opportunities.