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Paying for Good Neighbours: Estimating the Value of an Implied Educated Community

Department of Geography and Environment and Centre for Economic Performance, London School of Economics, Houghton Street, London, WC2A 2AE, UK, s.gibbons{at}lse.ac.uk

By definition, spillovers across households in residential communities mean that people incur costs from living in neighbourhoods where a high proportion of households suffer deprivation, regardless of their own economic circumstances. To verify the existence of intracommunity spillovers, this paper shows that home-owners in England and Wales are prepared to pay a substantial premium to avoid educationally poor neighbourhoods. An increase of 1 per cent in the proportion of higher-educated residents in a community, relative to the regional mean, increases prices by 0.24 per cent. One interpretation of this educational elasticity is that it estimates the social benefits of education in the local community. A hedonic approach is used, paying careful attention to the endogeneity of neighbourhood characteristics in a property price model.

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