Monday, July 12, 2010

Unusual Market Failures: Why Aren't Developers Investing More in Schools

This NY Times article made me think. One of the main things that parents are looking for when choosing where to live is the school system. So why aren't more property owners and developers trying to invest more money in the school system both to raise the value of a new development and to raise property values in a less well off neighborhood? Are there legal hurdles? A failure of imagination? Or simply complacency do to the idea that schools are mostly the government's job?

[The article does make clear some developers are investing in NYC but are reliant on public initiative for at least some of the funding. I'd guess that NYC is way ahead of the curve here given insane property values ($2 million for an apartment!!!!) so even less of this is likely elsewhere. Though I don't have the data so could be way off on this assumption.]


  1. The new thing around here are neighborhoods that have a grocery store, doctors offices, gym, church, movie theater and schools built together. The developers call them "villages." They're sort of nice. It's a big upfront investment. The other problem is around here mostly retired people move into those communities, so most facilities go to waste.

    I don't know if developers invest in public school systems. They'd have to own a lot of property in a county for that to pay off, right?

  2. An individual developer would have to have a huge upfront investment to make it pay off. I think the market failure is in the lack of ability for developers to coordinate action to improve property values through better schools. Of course, since there is disagreement about what works in education the risk may simply be too much to attract any investors. Though since it's the perception of good schools that matters this may not be so risky, all you need is to follow the latest fad and to keep pushing the school board to follow whatever that fad is to maintain the reputation.