Pay for Elite Private Schools or Pay for Higher Housing Prices? Evidence from an Exogenous Policy Shock

We explore the impact of the lottery enrollment policy, which aims to promote equal and affordable education but introduces private school enrollment uncertainty in China. Using residential housing transaction data from the largest real estate agent in Chengdu during 2018-2020 and controlling for grid-level demographic and economic variables, we assess how parents react to the policy shock by the pricing premiums and trading behavior of school district housing (SDH). We find that the lottery-based uncertainty increases the scarcity of elite public schools to a higher level and incurs higher costs for parents demanding better education. The housing price premiums of Key SDH and Elite SDH communities rise by 1.1% and 6.7% in the post-policy period, respectively. We also observe a significant intensification of the residential sorting behavior within the elite school districts afterward. Our results suggest that parents pay higher housing prices when quality private schools become uncertain