The school zone surcharge

We often have briefs from our clients that focus on school zones. Many are homebuyer clients, but this quest isn’t just restricted to home searches.

Investors often list this as a criteria too.

There have been many articles and media stories about the value growth that certain premium public school suburbs have experienced, and it is fair to say that double digit price surcharges are standard for such areas.

Parents who have set their sights on a premium education for their children will often target a highly-prized school zone for their family home in the hope that they will give their kids an education advantage for a public school price.

We’ve had countless clients who haven’t even had children choosing to target premium school zone properties.

Many investors assume a premium school zone will aid their property’s capital growth.

There are some critical questions, though that buyers should be asking themselves before they plunge into paying a premium for a prized school zone location.

Firstly, have they explored other local school options, including new emerging schools? Some schools that have historically carried negative stigma have proven to be out-performers, and a change of principal, new staff initiative, adoption of a specific education platform, or just simply, a significant government grant/funding can make an enormous difference to a school.

Importantly, have they done a cost-benefit analysis on their plan? For example, if the family unit is a one-child family unit, is the price differential between the zoned catchment and the non-zoned catchment greater than, or less than the projected cost of a private school education? If a one-child family unit planned to take advantage of six years of premium public school education, a $30,000 per annum private school fee total may be well under the price differential for the house.

In fact, it most likely would in Melbourne’s premium suburbs.

Even for some two-children family units, the cost associated with privately educating both children through high school could be lower than the house premium they are considering paying.

Buyers also need to consider the risk associated with a school catchment changing. It is fair to say that zones do change, and the capacity constraints of a popular school will determine where school zone borders are placed, as will the establishment of a new school.

When it comes to investment potential, a new set of questions arise.

So many investors adopt the idea, and get the execution wrong. Selecting a zoned location, but buying a small cottage or flat is a mistaken strategy. If a dwelling is unlikely to attract a family as tenants, it will also be unlikely to attract a family as future buyers. The capital growth prospects of a non-family home in a prized school zone area are questionable. There will no doubt be some growth drivers propelling the price gains over the long term, but owner-occupier desirability from families will be limited if the property is clearly a one- or two-person dwelling.

If an investor is financially able to target a family home in a prestigious school zone location, they should be considering the rental returns, vacancy rates, average tenure of tenant, and likely wear and tear on the property before they focus on the capital growth prospects. They may find that purchasing smaller property within a tighter distance to CBD and transport links with professional tenant appeal is a better overall proposition when it comes to future performance of the asset.

Buying into a school zone, (or two zones in this recent case of our clients’ below) can work superbly for families, but it’s essential that all of the reasons are carefully considered, and the cost-benefit analysis is calculated.

This was a very proud acquisition, and our clients’ children will have the benefit of not just one specially zoned high school, but 13 years of education at two prized schools in the area.