Homeowner and Renter Payment for School Quality in Beijing: Boundary Fixed Effect Analysis with Housing Price–Rent Comparison

Abstract

The commonly used traditional hedonic price model is likely to be biased in exploring residents' willingness to pay for school quality because of unobservable characteristics. To circumvent this issue, using city-level and district-level key primary school attendance zones data and average home value data of communities in Beijing in December 2016, we employ paired difference regression using a boundary fixed effect approach to explore the capitalization of school quality, with 750 m as the threshold distance within community pairs and 500 and 1,000 m for robustness checks. The results indicate that housing prices respond significantly to both city-level and district-level school qualities in Beijing, with premiums of 17.2% and 8.37%, respectively. However, we find no premium for housing rent. Homeowners show concern over good school quality and are willing to pay more for higher school quality, while renters will not pay for it. This study further suggests that the traditional hedonic price model has overestimated the capitalization of school quality in housing. The estimation results from the boundary fixed effect approach are more robust and reliable. Based on these findings, urban policy recommendations and action plans are proposed.