A story in the Courier-Mail this morning regarding Ironside State School in St Lucia, Brisbane reinforces Independent Schools Queensland head David Robertson’s argument for reforming school funding arrangements (see QEW post), as it appears parents are very willing to pay to send their children to high-performing State Schools such as Ironside. But this high willingness to pay does not provide the Education Department with additional funds; instead it benefits local property owners. The Courier-Mail reports:
Ironside State School is one of Brisbane’s most sought after primary schools.
Consistently ranked as one of the top performing academic facilities in the city, it is little wonder the school was forced to introduce a catchment zone around St Lucia in a bid to cap student numbers…
…DJ Arnold Real Estate owner David Arnold said Ironside State School was one of the biggest drawcards for families who moved into the area.
“We find people come here to rent to secure their children’s enrolment,” he said.
“That’s a big thing.”
The State Government is rightly interested in value capture regarding the benefits created by proposed new infrastructure investments such as Cross River Rail. It should also consider capturing part of the value created by existing infrastructure, including high-performing state schools such as Ironside State School and Brisbane State High, which drive up rents and hence property values in their catchment areas. Relevant policy measures would include the proposals advanced by David Robertson last week (e.g. a means-tested school voucher scheme) and the replacement of the inefficient stamp duty tax regime with land tax.
Ironically, parents can end up paying similar amounts to private school tuition fees, through higher rents or property prices, so they can live in high-performing school catchments, as demonstrated by Ian Davidoff and Andrew Leigh, then at the Treasury and ANU respectively, in an excellent 2007 paper regarding the impact of Canberra public schools on the local property market:
Queensland Economy Watch 
Of course great state schools, better public transport, great parks and good views etc are all captured into property values (just like greater flood risk should reduce land values). They are just some of the attributes that contribute top a property’s value. The only difference is that they aren’t registered on the title. There have been lots of hedonic pricing studies that have been done over the years to estimate these values.
But do we really need fancy city deals (and the fees that will be captured by the advisors) to capture some of this value. Why not have a more nuanced land valuation system that better reflects attributes? Or why not have a rethink on land tax exemptions for owner occupiers?
Thanks for the comment, Jim. Yes, we should definitely consider land tax options.
All good in theory but does not always reflect reality. What you are proposing is to tax for a benefit now that may never actually be earned. The “increased” property value is only recognised if you sell during the relevant period. The relevant period being the time when the “infrastructure” in question actually adds value. In the case of schools they are often only as good as their Principal and overall school management. When the Principal changes the schools fortunes often also change. If the school declines, the value “premium” will diminish and all the unfortunate ones (likely the majority) who did not sell will have paid a tax for a benefit never enjoyed. The issue is more complex than presented and more work is needed to ensure the economic theory is reflected in balanced real world outcomes.
Thanks for the comment, Bill. Yes, using land tax to capture some of the value would be imperfect. The first best solution would be to introduce a means-tested school voucher scheme.