School zones – Do they make your house go up in value faster?

Many Kiwis think a property in a “good school” zone will be a better investment.

The popular train of thought is: “I’m going to buy in a good school zone because it’ll be more highly sought after, so it’ll go up in value much faster”.

But is this true? Should we all be adding “school zone” to our investment criteria when searching for a property?

In this article you’ll learn whether school zones really do impact capital growth so you can make an informed decision when buying your next investment property.

Do you have a question or comment about school zones? Feel free to leave your thoughts in the comment section at the end of the page.

Are properties in a better school zone more expensive?

The short answer is “yes”.

To get this answer we looked into Auckland school zones for extremely desirable and highly regarded schools.

Take the “double grammar zone” as an example. Families in this area can send their children to Epsom Girls Grammar and Auckland Grammar, two of the top public schools in the city.

Houses in this area sell for 1.95x more than the average property in the wider Auckland region.

So, if the average property in the Auckland Region sold for $1 million, you’d expect the average property in the double grammar zone to sell for $1.95 million.

But, this isn’t all down to the school zone. You also need to take into consideration these schools are in posher areas of the city.

If you take a look at the suburbs within the double grammar zone they are all highly affluent: Epsom, Parnell and Remuera.

So, what’s difficult to discern is: are these properties popular because they are in popular areas, or is it solely because of the double grammar zone?

In practice, it’s going to be a mix of all these things.

In Christchurch, it’s a very similar story.

Houses within the zone for Christchurch Girls High School and Christchurch Boys High School are 1.44x more expensive than the average.

So, if the average price in Christchurch city is 700K, you’d expect a property in this area to be a million.

The houses within this school zone tend to be in high socio-economic areas – Central Christchurch, Fendalton and some areas of Riccarton. Because these areas are more affluent the houses are going to be more expensive regardless.

Are properties in a school zone going to go up in value faster?

To answer this question, we’ve looked at the average annual change in house prices over any given 7-year period.

Here we’ve compared the “more desirable” school zone with the rest of the region.

This allows us to see whether there is any long-term difference in the capital growth for houses in desirable school zones vs the rest of each city.

Here’s what we found.

Auckland

Take a look at our graph for the “double grammar zone” in Auckland. The orange line is the double grammar zone and the blue line is the market average.

This graph shows these two lines consistently following the same trend. There are instances where sometimes one is higher than the other, and vice versa, but overall the patterns are consistent.

For instance, in early 2015 the double grammar zone was running at about 9.5% whereas the average was at about 8%.

When you average this out, the Auckland Region (as a whole) had a capital growth rate 0.3% better than the double grammar zone.

What that means is, if the average property in the city was going up 7% per year, a property in the double grammar zone would go up at 6.7%.

So, yes, it’s a slower rate but by a totally marginal one. This doesn’t suggest that the better school zone had an outsized impact on capital growth.

Christchurch

Again, a similar pattern appears for Christchurch.

Sometimes the wider city betters the school zone; sometimes the school zone is bettering the norm. But overall, they run along the same trend.

Over the last 30 years the better school zones – Christchurch Girls High School and Christchurch Boys High School – grew in value 0.11% per year compared to the wider city.

This is small and not enough to draw any serious conclusion.

Put simply, it’s not information that a property investor should look at and say: “Great, let’s buy in the school zone”

Wellington

In Wellington, the trend between the school zone and the average is pretty consistent too.

However, in Wellington City the wider district went up in value considerably faster than the Wellington College/Wellington Girls school zone.

But this data could be skewed, since there are a large number of apartments in the “more desirable” Wellington school zone. Apartments don’t go up in value as quickly, so this could bias the school zone down.

But this is important in itself because it shows there are so many other things at play – not just the school zone.

For instance, property type is still going to be more influential in your investment decision.

Do properties in better school zones sell quicker?

But capital growth isn’t the only consideration when purchasing an investment property. You might also think about how long it will take to sell your property.

So do houses in better school zones sell more quickly?

No, not really. The properties in the school zones are selling, pretty much, at the same speed of other properties that aren’t.

For instance, in Auckland’s double grammar zone it takes 47 days to sell a property, compared to 40 days for the average house.

These extra 7 days are probably because that’s the reality of buying (and selling) a more expensive house.

But doesn’t a more expensive property mean a better investment?

If we circle back to our first point for a moment, it’s important not to confuse a more expensive property with a property that grows in value more quickly (as a percentage).

When researching this I found the outcome surprising. I thought “surely better school zones should have some benefit?”

In thinking about why school zones don’t increase in value faster, I’ve come up with the idea of “Premium in, premium out.”

You pay a higher price to get into the premium market. And you get that same premium when you sell. But, the value of the premium doesn’t increase over time.

Let me give you an example to show what that means.

Right now, you’ll pay about a 95% premium to get into the double grammar zone. When you come to sell that property, you will still sell your property for 1.95x the Auckland Region average.

So, while a better area and a better school zone will make your property more desirable, it doesn’t mean that it makes your property disproportionately more desirable over time.

You get the same capital growth rate.

For the more expensive property to be a better investment, the value of your premium must increase over time. But it doesn’t. The capital growth rate is the same.

So, should i buy my investment property in a school zone?

There are a lot of ideas investors think are going to be important in investment – but in reality, they don’t matter quite so much.

In the case of the school zone, the data does not support that a better school zone automatically means a better investment.

Sure, there may be a price premium when buying into the zone, because these sought-after zones line up with higher value areas, but you don’t get proportionately more capital growth over time.

Sure-fire ways of impacting your property’s value, and it’s investment performance, are things like:

• Region

• Population growth

Those are the things to focus on, not school zones.

Write your questions or thoughts in the comments section below.