School fee/real-estate arithmetic
There’s an interesting piece in the Herald arguing that the effective school fees you pay by living in one of the top school zones in Auckland aren’t great value, and that you’d be better off just paying private-school fees explicitly. It’s a good point, but I think the calculations in the article are missing something:
Where a school zone boundary sliced through the middle of a suburban street, in-zone houses were up to $272,000 more expensive than comparable properties on the other side of the road.
“Over the life of a 20-year mortgage, at a fixed mortgage rate of 6.5 per cent, the extra $272,000 it costs to buy a home ‘in-zone’, with interest, equates to an outlay of $486,710. That’s almost half a million dollars.“
That’s compared to private-school fees that could easily total “more than $100,000 per student over five years”.
There are two points that don’t get addressed explicitly in the article. Firstly, many people have more than one child. Secondly, the money spent on school-zone real estate isn’t gone, it’s a speculative investment.
Using their figures (because I’m lazy), if you subtract two kids at $100,000 school fees from the $486,710 real-estate plus interest you get $286,710. If the real-estate premium for the school zones keeps up with inflation, you basically break even, with the possibility of a big loss (if boundaries are redrawn) or a big gain (if prices keep going up).
If you’re the sort of person the article is aimed at, there’s a good chance you’ve already got more of your money in Auckland real estate than is ideal, so speculating on the Grammar Zone premium might not be a good investment, but it’s not self-evidently bad.
There are a couple of surprising points about the article. First, you would hope this is the sort of calculation anyone would already be doing before planning to spend the thick end of million bucks. Second, the fact that real-estate prices can go up as well as down is not something the Herald usually misses.
Thomas Lumley (@tslumley) is Professor of Biostatistics at the University of Auckland. His research interests include semiparametric models, survey sampling, statistical computing, foundations of statistics, and whatever methodological problems his medical collaborators come up with. He also blogs at Biased and Inefficient See all posts by Thomas Lumley »
There is an implied assumption that private schools are better than public schools but that’s not necessarily true. American research shows that after accounting for socio-economic status, public schools perform as well as private schools academically.
I would guess that AGS in particular is better academically than private school because they have a large group of kids working at very high levels. That depth of talent feeds off itself.
9 years ago
Pledger: much of the US research I have seen on public vs private education tends to lump several types of private schools together (including religious schools which may not be maximizing academics – these are common here) but I am always looking for a study that doesn’t have that problem to confirm or deny that argument.
Also, I don’t know what NZ private schools in Auckland look like to know if that would also apply there.
The size issue is a significant factor (in both directions) in US private/public decision making.
Lumley:
Other factors in the calculation:
In the US, there is solid evidence that there are neighborhoods in bad school districts (but desirable locations otherwise) that are heavily populated by people who have made that trade off (cheaper housing as a trade for private schools). (certain neighborhoods in Oakland California).
On the other hand, you have people in good school districts who pay the premium that send their children to private (non-religious) school (though typically there is not a viable “comparable property”across the street” option in those cases.) So there is at least one other term in that calculation.
There is some evidence that people in the US are aware of, and explicitly banking on the speculative investment aspect. (people discuss this frequently when making choices and marketing houses so I’m going to call it real even the the absence of a study (that I know about).
One thing not mentioned in the article is the supply of private school places. In the greater San Francisco area, if you don’t start in private preschool at the school you wish to attend, the odds of getting in at all are very low (30% acceptance rates at 1st grade, >10% at any other grade). Private high school is hit and miss since most of them are stand alone and you have to apply fresh.
Interestingly, the constrained supply has lead to new for-profit market entry (converting office parks) but the good being supplied is not quite the same at the old line schools.
If supply constraints exist in Auckland, good school districts might continue to demand a premium.
This is an issue I would love to throw a thesis project at…
9 years ago
One needs to consider what the parents consider a successful outcome of their child attending.
Academic success is only part of what one gets at a private school. A network of fellow students and their parents is also useful. I suspect many of the parents sending their children to private schools have either had or seen the benefits of being part of a private school cohort.
9 years ago
AGS is a little different though because it’s Old Boys Network is probably as strong (if not stronger) and well connected as any private school.
9 years ago
It’s a bit unclear how the comparison was done. At one point they talk about comparing houses on the other side of the street, but at the end they make comparisons like this:
Westlake Boys High School: Forrest Hill, Sunnynook, Milford, Castor Bay, Campbells Bay, $736,500 vs Glenfield, $580,000. Difference $156,500
I’m not surprised that properties in Glenfield have a lower price than the average of those suburbs. Comparing Campbell’s bay (in-zone) with Mairangi Bay would be a better comparison. Or Milford (in-zone) with Takapuna.
Similarly, the grammar zone is (on average) much closer to the CBD (which is likely price relevant) compared to the out-zone comparator.
9 years ago