Impact of Property Taxes and Public Education Outlays on Housing Costs: Recent Empirical Evidence

This empirical study investigates the impact of property taxes, public education outlays, and other factors on interstate differentials in the cost of housing. While the literature on geographic cost-of-living differentials is well developed, the literature on geographic cost-of-housing differentials is much less so housing costs consist of the price of housing per se for owners (including maintenance and repairs) or rental payments per se for renters. Relevance of this research is elevated by the fact that the cost of housing is the main driver of cost-of-living differences between states. Ordinary least squares results imply that the cost of housing is positively a function of median family income, miles of shoreline, and the mean January temperature, and negatively a function of toxic waste releases and the presence of right-to-work laws. Finally, it is found that property taxes are capitalized into housing prices, thereby lowering those prices and the overall cost of housing, as it is narrowly defined, whereas there is modest evidence that public education outlays may also be capitalized into housing prices, thereby elevating the cost of house.