An increase of $1,000 in current state aid per pupil = increase of 5 percent to 13 percent in property values.

A major feature of the school finance landscape over the last two decades has been the reform of state school finance systems. Using the case of Maryland's Bridge to Excellence in Public Schools Act, this paper extends the current literature by developing a conceptual framework for residential bidding and sorting and using it to estimate housing market responses to the Maryland state aid reform.

Using repeat-sales data and many control variables, the authors find that an increase of $1,000 in current state aid per pupil induced by the reform is associated with an increase of 5 percent to 13 percent in property values. Moreover, within a district the property-value increases are greater in higher-income tracts, where the demand for school quality is likely to be greater.