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The Effects of Negative Equity on Children's Educational Outcomes

Author

Listed:
  • Vicki Been

    (New York University)

  • Ingrid Ellen

    (New York University)

  • David Figlio

    (Northwestern University)

  • Ashlyn Aiko Nelson

    (Indiana University)

  • Stephen L. Ross

    (University of Connecticut)

  • Amy Ellen Schwartz

    (Syracuse University)

  • Leanna Stiefel

    (New York University)

Abstract
This study examines the effects of negative equity on children's academic performance, using data on children attending Florida public schools and housing transactions from the State of Florida. Our empirical strategy exploits variation over time in the timing of family moves to Florida in order to account for household sorting into neighborhoods and schools and selection into initial mortgage terms. In contrast to the existing literature on foreclosure and children's outcomes, we find that Florida students with the highest risk of negative equity exhibit significantly higher test score growth. These effects are largest among Black students and students who qualify for free or reduced-priced lunch. We find evidence supporting two underlying mechanisms: (1) consumption patterns suggest that families in negative equity may reduce the impact of income losses on consumption by forgoing mortgage payments, and (2) mobility patterns suggest that families exposed to high levels of negative equity may move to schools that are of higher quality on average. While negative equity and foreclosure are undesirable, the changing incentives in terms of mortgage delinquency may have helped families manage the economic shocks caused by the great recession, as well as temporarily reduced the housing market barriers faced by low income households when attempting to access educational opportunities.

Suggested Citation

  • Vicki Been & Ingrid Ellen & David Figlio & Ashlyn Aiko Nelson & Stephen L. Ross & Amy Ellen Schwartz & Leanna Stiefel, 2021. "The Effects of Negative Equity on Children's Educational Outcomes," Working Papers 2021-007, Human Capital and Economic Opportunity Working Group.
    • Handle: RePEc:hka:wpaper:2021-007
    Note: MIP
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    File URL: http://humcap.uchicago.edu/RePEc/hka/wpaper/Been_Ellen_Figlio_etal_2021_effects-negative-equity.pdf
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    References listed on IDEAS

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    Cited by:

    1. Choi, Jung Hyun & Zhu, Linna, 2022. "Has the effect of housing wealth on household consumption been overestimated? New evidence on magnitude and allocation," Regional Science and Urban Economics, Elsevier, vol. 95(C).
    2. William N Goetzmann & Christophe Spaenjers & Stijn Van Nieuwerburgh, 2021. "Real and Private-Value Assets [Gendered prices]," The Review of Financial Studies, Society for Financial Studies, vol. 34(8), pages 3497-3526.
    3. Cordes, Sarah A. & Schwartz, Amy Ellen & Elbel, Brian, 2023. "The effects of owner-occupied housing on student outcomes: Evidence from NYC," Regional Science and Urban Economics, Elsevier, vol. 98(C).

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    More about this item

    Keywords

    housing wealth; mortgage; racial disparities; foreclosure;
    All these keywords.

    JEL classification:

    • I24 - Health, Education, and Welfare - - Education - - - Education and Inequality
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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