Housing Choice Under School Admission Uncertainty: Evidence From China's School Lottery

Abstract

To relieve the strain on public school seats and mitigate competition for elite schools, Beijing introduced a school lottery that somewhat severed the link between housing and school assignments. Using housing transaction data from Beijing, we leverage the school lottery as a quasi-experiment to examine how school admission uncertainty affects parental decisions on housing choice. Our findings show that, while the school lottery reduced the school-quality premiums of Tier 1 school district houses (SDHs), it improved the premiums of Tier 2 SDHs. Besides, the lottery had heterogeneous effects in different school zonings. In zonings with more elite schools, premiums of SDHs either increased or remained unaffected. These indicate that households, in response to admission uncertainty introduced by the lottery, tended to choose SDHs with higher admission probabilities. This new pattern of housing choice mitigated the policy effect on narrowing price gaps between SDHs and non-SDHs, which was an unintended consequence from the policymakers' perspectives.