Schools and Home Values: Why Every Narberth Homeowner Has Money Riding on Lower Merion Schools

When school quality changes, home values respond. That link, well documented in economic research since at least the late 1990s, is the channel through which fiscal pressure on Lower Merion School District quietly becomes a cost borne by every Narberth homeowner.

Most arguments about zoning amendments 4a and 5b focus on what residents can see. The height of the building. The cars on the street. The shadows on a neighbor’s yard. These matter, and we have written about some of them.

But there is a quieter cost that does not show up in a shadow study or a traffic count. It touches the resale value of every home in Narberth, not only the ones near the new development. The cost runs through Lower Merion School District, and the link from schools to home values is one of the best understood relationships in real estate economics.

This article walks through that link. It explains how economists have measured it, applies the math to Narberth, and what the numbers tell us.

The premium Narberth homeowners are already paying

Lower Merion School District is consistently ranked among the very top districts in Pennsylvania. The Pittsburgh Business Times 2025 School Guide placed LMSD third statewide, the same rank it earned in 2024.¹ U.S. News and World Report ranks Lower Merion High School and Harriton High School at numbers 11 and 12 among Pennsylvania’s high schools.² LMSD spends close to $29,884 per student each year, one of the highest per-student figures in the Philadelphia region.³

This standing is not abstract. Local real estate offices and listings mention the school district prominently. Brokers know what buyers are paying for. Median home values in Narberth run roughly $713,000 according to the Zillow Home Value Index for Q3 2025.⁴ The median home value in Montgomery County as a whole is about $345,000.⁵ The gap is not entirely about schools, but schools are a major part of it.

That premium is what is at stake. If the school district softens even slightly because of pressure on its budget, the premium softens with it.

How economists know schools matter for home values

The link between school quality and home values is intuitive. Parents pay more to live where their children will attend a better school. But intuition is not measurement, and the technical challenge of separating “school effect” from “nice neighborhood effect” is real. Better neighborhoods often have better schools, so a simple comparison of home prices does not tell you which factor is doing the work.

In 1999, the economist Sandra Black published a paper in the Quarterly Journal of Economics that solved this problem cleanly.⁶ Her method is called a boundary discontinuity design, which sounds technical but is simple in concept. She compared homes that sat on opposite sides of a school attendance boundary. Two homes a few hundred feet apart, on the same street, in the same neighborhood, with the same proximity to parks and shops, but assigned to different elementary schools.

Whatever made one home worth more than the other could not be the neighborhood, because the neighborhood was the same. The only systematic difference was the school. Black found that a five percent improvement in test scores raised home values by about two and a half percent.

Many studies have followed in the 25 years since. A 2011 review by Phuong Nguyen-Hoang and John Yinger pulled together dozens of these studies and concluded that home values rise by up to about four percent for a one-standard-deviation increase in student test scores, with smaller estimates coming from studies that use stronger statistical controls.⁷ Some of the more carefully identified studies, like Bayer, Ferreira, and McMillan in 2007, find school-only effects that are meaningfully smaller than Black’s original estimate once neighborhood sorting is properly accounted for.⁸ The overall message of the literature is that the school capitalization effect is real and reproducible, but its size is on the smaller end of what early studies suggested.

A quick note on terms. Capitalization is the economic concept that future benefits, or future costs, get reflected in a current price. A buyer who expects to pay lower taxes, or to send their child to a better school, is willing to pay more for the home today. The future shows up in the present price. Standard deviation is a statistical measure of how spread out a set of numbers are. Moving school quality by one standard deviation roughly means moving from the middle of the pack to about the top 16 percent of districts, or the reverse.

The point is not the exact number from any one study. The point is that the basic finding has held up across dozens of studies, different cities, different decades, and different methods. Schools and home values are linked, and the link is measurable.

The mechanism

When school quality changes, home values change because future buyers price in the expected school experience for their family. Larger class sizes, fewer programs, deferred building maintenance, loss of experienced teachers, all of these are real changes that buyers notice and pay less to accept. The same works in the other direction when a district improves.

This is true even for homeowners without children. The home is the asset. The next buyer cares about the schools whether the current owner does or not. That is why the school quality premium shows up in resale prices across an entire district, not just in homes with school-age children inside them.

Where 4a and 5b enter the picture

We have written previously about the per-unit fiscal contribution of different housing types to LMSD.⁹ The short version: a new owned townhouse, at a site like 198 Elmwood Avenue, contributes roughly $9,221 per year toward LMSD through property taxes. A new apartment unit at the same site contributes roughly $2,854. The gap is about $6,367 per unit per year, and it scales with the number of units built.

The gap exists because apartments are assessed at lower per-unit values than owned housing, and because the renters who occupy them, while paying that tax indirectly through their rent, do so against a lower assessed base. This is a structural feature of how Pennsylvania assesses multifamily property, not a moral failing of renters.

If 4a and 5b enable, conservatively, 50 to 200 new apartment units across parcels that fit the new rules over the coming years, the annual revenue shortfall relative to what equivalent owned housing would have generated runs roughly $318,000 to $1.27 million per year. LMSD’s 2025-2026 General Fund budget is approximately $353 million,¹⁰ so this is not a budget-breaker by itself. But it is not zero either, and it compounds with other pressures the district faces, including teacher contract costs, facility maintenance, and special education obligations that have been rising statewide.

LMSD’s standing rests on its resources. The high per-student spending, the high average teacher salary, the small class sizes that the district routinely highlights in its publicity. Holding all of that steady requires revenue that keeps pace with costs. Each new unit that contributes less than its share of fiscal need creates a small tilt away from steady.

Applying the math to Narberth

If fiscal pressure causes even a small decline in measurable school quality, what does the literature say about the home value effect, and what would that mean for Narberth?

Two pieces of context first. The 1,953 housing units in Narberth include both owned and rented housing. Roughly 58 percent are owner-occupied, which works out to about 1,133 owner-occupied homes.¹¹ The median home value, drawing from the Zillow Home Value Index for Q3 2025, is about $713,000.⁴ Other sources put the figure between $620,000 (Census-based American Community Survey estimates)¹² and $939,000 (current asking prices on active listings).¹³ $713,000 is a reasonable middle anchor for the math below. If you prefer a different number, the percentages translate.

Suppose fiscal pressure produces a measurable softening of school quality on the order of one percent. The capitalization literature, drawing from Black’s original estimate and the range in Nguyen-Hoang and Yinger’s review, suggests this would translate to roughly a 0.5 percent to 2 percent decline in home values across the district.

Applied to Narberth:

• A 0.5 percent capitalization effect on a $713,000 home is about $3,565 per home.
• A 1 percent effect is about $7,130 per home.
• A 2 percent effect is about $14,260 per home.

Across the roughly 1,133 owner-occupied homes in Narberth, the aggregate household wealth at stake runs from about $4 million on the low end to about $16 million on the high end.

These are illustrative figures, not predictions. They depend on how much new construction actually occurs, how much fiscal pressure actually translates to service quality changes, and where in the capitalization literature you set the anchor. The point holds: if schools soften because of fiscal pressure, every homeowner in Narberth absorbs a fraction of the loss, regardless of where they live in the borough.

It is also worth noting that LMSD draws revenue from the entire township, not only Narberth. Pressure from 198 Elmwood and similar parcels is shared across all LMSD homeowners, which spreads the per-home impact but also extends it. The full at-risk wealth across the district is larger than the Narberth figure above. We focus on Narberth because that is the community whose zoning decisions are creating the pressure.

What can be said

These are the claims that hold up to scrutiny:

The school district is a major component of why Narberth homes command the prices they do. This is supported by the consistent ranking of LMSD, by realtor behavior, by the size of the price gap between Narberth and the county, and by decades of academic research on school capitalization.

The capitalization literature is well-established and reproduces across cities and decades. The exact coefficient varies by study, but the existence and direction of the effect is not seriously contested in the economics literature.

New apartment units do not pull their weight in school district revenue compared to owned housing. This is documented in our earlier piece and is a structural feature of assessment in Pennsylvania.

The risk created by this gap is borne by every homeowner in the district, not only those near a new development. This follows directly from the capitalization mechanism.

These are the claims we cannot make with confidence:

No one can predict exactly how much LMSD will deteriorate, if at all. The district may successfully absorb fiscal pressure through efficiency, other revenue sources, or reallocation. School quality is sticky in the short run.

No on can predict exactly how many units will be built under 4a and 5b. The range of 50 to 200 over a multi-year horizon is conservative but speculative.

Capitalization estimates vary. Some studies find smaller effects than others. The range matters, and we have tried to present a range rather than a point estimate.

The school quality channel is one of several through which zoning changes affect home values. Proximity effects, fiscal capitalization from infrastructure costs,¹⁴ and land value transfers to current owners of upzoned parcels are separate channels we will cover in future articles.

Why this matters for the zoning debate

The political dynamic of land-use decisions tends to focus on visible, immediate impacts. Whether the new building blocks light. Whether parking gets harder on a particular block. Whether traffic increases at a particular intersection. These are real, but they are also concentrated: they affect a small number of nearby residents most acutely, which is why nearby residents tend to be the loudest voices in zoning hearings.

The school capitalization channel works differently. It is invisible in the sense that no one walking down Forrest Avenue can see it. It is diffuse in the sense that every homeowner in the borough absorbs a small fraction of the cost. And it is delayed in the sense that it shows up in resale prices over years, not in immediate measurable impacts.

But invisible, diffuse, and delayed do not mean fictional. The mechanism is real, the academic evidence is strong, and the dollars at stake are not trivial.

When residents weigh the merits of 4a and 5b, they should know that a portion of the cost falls on them whether or not they live near a new development. The risk is borough-wide. The benefit, in the form of an immediate windfall to the current owners of parcels that become more valuable the moment the rules change, is concentrated.

That asymmetry is worth naming.

Thanks for reading.