Homeowners in affluent areas get an overnight windfall when a nearby school is given an improved Ofsted rating, a new University of Sussex study has found.

Local house prices rise by as much as 1.5 per cent in the immediate aftermath of an improved Ofsted score, according to a new study of 8,000 primary schools in England.

A single-point increase in a school’s Ofsted rating (eg moving from ‘good’ to ‘excellent’) inflates house prices in the local neighbourhood by an average of 0.5 per cent.

This rises threefold to 1.5 per cent in affluent areas, whereas there is almost no effect in disadvantaged neighbourhoods, according to the study’s author, Dr Iftikhar Hussain of the University of Sussex.

The reverse is also true – a worse Ofsted score deflates house prices by the same proportion.

The findings are presented today (21 March 2016) at the Royal Economic Society conference at the University of Sussex, just outside Brighton.

Surprisingly, the team also found that short-term changes in exam results and other measures of school quality barely create a ripple in the housing market.

Dr Hussain says: “People seem to be using Ofsted results as a quick and easy proxy for the quality of a school, whereas they find it much harder to fathom changes in a school’s SATS results.”

By isolating the exact date of an Ofsted inspection and comparing house price-levels in the weeks immediately before and after that date, Dr Hussain was able to observe how much impact the announcement had. A number of measures were put in place to ensure that other external factors were not responsible for any increase, such as measuring house-price changes near schools whose Ofsted scores stayed the same.

Dr Hussain adds: “The fact there is any market reaction at all is extremely interesting, given that changes in inspection ratings are signals of short-term innovations in quality, which may be reversed in the next inspection round.

“Having said that, quality can change quite quickly, such as with the departure of a good headteacher, and it's here that inspection data can be helpful. 

“What’s clear from the results is that, if they can afford to, people are willing to pay for better quality education for their children, whether that’s directly through private-school fees or indirectly via paying an ‘Ofsted premium’ when buying a house.” 

Dr Hussain used the proportion of children eligible for free school meals to determine the affluence of schools.