Real Estate

Real Estate Matters

Property price and public schools

Young families, both local and international, are attracted to Palo Alto for its excellent public schools. However, not everyone understands what exactly good school means. Moreover, how big is the premium on homes we are paying for good public schools, and how do good schools tend to affect property price in the long run?

As for school evaluation, it's convenient to rely on school ratings quoted by popular home-searching websites. It is nevertheless, far more critical to understand the evaluation criteria behind these ratings and come to one's own conclusion. Fortunately, many facts, such as the number of students, enrollment by student ethnicity and student-to-teacher ratio, are publicly available, and not difficult to find through a few web searches. To measure academic strength, while the state of California is shifting to a more balanced assessment system, past academic performance index (API) data are still available as a quick reference. When referring to API, we need to look at the most recent results, as well as the trend.

With all the data on hand, it is not difficult to find out that the schools with the highest APIs in the Bay Area are actually not in Palo Alto. However, Palo Alto is the city that has excellent schools (most 900-plus API) across all different neighborhoods and grades the fact of its excellence across the board is unique. Student enrollments in Palo Alto public schools are also generally well diversified among ethnicities. Moreover, teacher-to-student ratio, one measure of school resources, of Palo Alto schools is often lower (better) than those high API schools in the East Bay or the South Bay. Furthermore, another highly appreciated aspect of public schools in Palo Alto is its choice programs, including language immersion and those based on non-traditional educational philosophy and methods. There are increasing demands on the latter, for schools that focus on critical thinking and problem-solving through project-based learning.

How does a good public school affect property price then? Palo Alto is not the area that has the most expensive homes in the Bay Area, especially compared to Atherton, Los Altos Hills and even Los Altos. However, Palo Alto does have the highest per-square-foot price among neighboring cities. For instance, during the first half of 2015, average sold price per square foot of living area in Palo Alto was $1,479. This is 29 percent higher than Los Altos, 36 percent higher than Menlo Park, 43 percent higher than Mountain View, and 60 percent higher than Cupertino. In other words, in exchange for good schools, for the same price, one ends up in a much smaller home in Palo Alto compared with other areas.

Another proven factor worth mentioning is that property price in Palo Alto tends to decline the least during an economic down cycle, but rebound the most during overall economic recovery. For instance, during the recent financial crisis, the median Palo Alto home price in 2009 declined by 13 percent from its 2008 peak, but rebounded more than two times that since. One the other hand, property prices in some neighboring cities have been more sensitive to overall economic cycles, which matters to people who have to buy or sell during those near-term peaks or troughs. Considering a home is the biggest lifetime purchase for most families, this is actually relevant to everyone in the long run. Both the resistance of Palo Alto property price in bad times and the strong momentum in good times are, to a big extent, supported by the depth of real demands because of good public schools.

Based on the full understanding of the correlation between good public schools and property price, there's no doubt that Palo Alto will continue to be the ultimate choice for young families. However, as Palo Alto homes become increasingly expensive, some buyers, especially those well-educated young professionals, have recently started to question whether the premium is worthwhile. After all, public schools are shaped around communities and parent involvement, thus are constantly evolving. It may just be a matter of time before public schools in other areas catch up with Palo Alto schools.

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Xin Jiang is a Realtor with Alain Pinel Realtors in Palo Alto. She can be reached at xjiang@apr.com.

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