Newswise — Student scores on state proficiency tests affect more than just education issues " they play an important role in house prices, a new study suggests.

While it has been well-known that homebuyers pay attention to schools when considering which house to buy, this research shows how potential buyers are evaluating school quality, said Donald Haurin, co-author of the study and professor of economics at Ohio State University.

The study of Ohio school districts showed that an increase of about 20 percentage points in the proficiency test "pass rate" increased house values in a district about 7 percent, even after taking into account other factors that impact house values.

Another measure of school quality " how proficiency test pass rates improved between the 4th and 9th grades " didn't have such a strong impact on house values.

The results suggest that, when evaluating school districts, homebuyers are looking at the end result of education " overall test scores " and not a value-added approach that considers how well schools do in improving students, Haurin said.

These findings add another factor to consider in the debate about whether proficiency tests are good for students, schools and communities.

"If parents and residents are paying attention to test outcomes, and not a value-added approach, that means school boards need to pay attention to outcomes too," Haurin said. "But focusing on test scores may not be the best way to achieve the goal of educating students to the best of their abilities."

Haurin conducted the study with David Brasington of Louisiana State University. They published their results in a recent issue of the Journal of Regional Science.

The researchers looked at 77,578 house-buying transactions in the year 2000 in seven urban areas in Ohio. The transactions occurred in 310 different school districts.

House prices in individual districts were correlated with the percentage of students passing all parts of the 4th and 9th grade proficiency tests administered to public school students in these districts.

Haurin said there were good reasons to believe parents and homebuyers would be most interested in schools that did best in the value-added approach -- improving test scores of their students between 4th and 9th grade.

Most importantly, overall test scores may reflect more on parental advantages than school quality.

A student from a privileged background, in a high-income school district, may arrive at school well-prepared and start out scoring well on standardized tests. Years of schooling may not improve that student's scores. "That school district will look good on average test scores no matter what it does with its students. And its high rating may not be deserved," Haurin said.

On the other hand, a disadvantaged student in a different school district could end up improving his test scores more than the privileged student, all because he went to a high-quality school. But in the end, if his test scores are not as high as that of the privileged student, the school will not get as much credit, at least in terms of house prices.

"So you can't look only at proficiency test scores as an outcome and say that is a measure of school quality," Haurin said. "But that's what homebuyers in our study did when they were looking for houses."

The emphasis on test scores has a real impact on housing prices, he said.

"In Ohio, there are districts with 20 percent pass rates and some with 85 percent pass rates, so based on our findings that would result in about a 23 percent difference in house values solely because of the schools. It is not trivial amount," he said.

One problem for school districts is that the value-added approach is difficult for researchers to measure, and difficult for the public to understand. Proficiency test scores, however, are readily available and easy to understand, which makes them more influential with the public, Haurin said.

These results suggest that some school boards may have a difficult time convincing residents, as well as potential homebuyers, that they have good schools in their district.

"The disadvantage that some school districts have is that they may be doing very well in terms of adding value to their students' education, but still may not be among the top scorers in the state. And the reason may not be because of the schools but because their students don't have the parental advantages that students in other districts have."

The issue may become critical when a district is asking for a new or larger levy, and must convince residents that the schools are doing a good job.

"If residents look just at test scores, and see they are not as high as in some districts, they may conclude that the school district is not doing as well. Well, the school district could be doing quite well in adding value to the students' education."

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Journal of Regional Science