Housing Boom Widened Access to Better Colleges, Study Shows

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For decades, families have used the equity in their homes to help finance college for their children. New research shows the housing boom of the late ’90s and early 21st century gave low- and middle-income families access to higher quality colleges. But the recent housing bust and rise in foreclosure rates may now constrict the range and quality of colleges that high school graduates in these income brackets can afford, making a case for why institutions and policymakers must make college affordability a priority.

In their study “The Effect of Housing Wealth on College Choice: Evidence from the Housing Boom,” Michael Lovenheim, of Cornell University, and C. Lockwood Reynolds, of Kent State University, link a short-run housing boom to where families chose to enroll their students. Families that enjoyed increases in the value of their homes, the primary asset for many lower and middle-income Americans, during the housing boom used their newfound housing wealth to send their children to schools with higher quality measures: higher SAT averages, per-student expenditures, per-student instructional expenditures, and B.A. graduation rates. Increased home equity helped families decide to enroll their children in flagship public universities as opposed to regional public schools, and took the community college option off the table to a great degree.

The study notes that each $10,000 home price increase among the lowest income families (under $75,000) increases the student’s likelihood of earning a bachelor’s degree by1.8 percent. This implies a 6.2 percent increase if the effect is multiplied by the average change in home prices among these households. The authors said these estimates suggest “potential reductions in the B.A. attainment rate among lower income families due to the housing market bust that began in 2006.” The study found no effect of housing wealth on B.A. completion rates for middle and high-income families.

Using the National Longitudinal Survey of Youth, Lovenheim and Reynolds determined that for every $10,000 in asset growth related to home ownership a family enjoyed in the four years before their child turned 18, the likelihood of their child attending a public flagship over a regional public increased by 2 percent. The likelihood of these students selecting a community college, meanwhile, decreased by 1.6 percent.

The study does not venture into the housing bust that followed this windfall period, and in an interview with Inside Higher Ed, the researchers admit the difficulty in “studying the effects of increases in housing prices on economic behavior.” What is clear is that families, in keeping with the “large degree of quality heterogeneity” in the U.S. higher education system, assign a relatively higher value to attending public flagships. The authors point to a growing body of literature that suggests “students attending higher quality universities have better educational and labor market outcomes.”

Getting a high-quality education may sometimes seem like a game of chance, and for families fortunate enough to own a home during the housing boom, “it was almost like winning the lottery,” Lovenheim said to Inside Higher Ed. But the downside of that boon may be catching up with those whose property values have plummeted in recent years. Lower income families, in particular, may be hit the hardest, as those who were able to put older children through college during the boom may not be in the same position with younger children who have yet to graduate high school. And, as Lovenheim and Reynolds conclude, the housing bust could have “long-run effects on the supply of high-skilled labor and on income equality.” An outcome that portends trouble for the national economy.

—Anneliese M. Bruner