Why smart investors avoid good school catchments

But while it may have been true a decade ago, this year it’s far from it. The numbers don’t add up any longer.

Even for homeowners, it’s a debatable now whether buying inside the catchment area of a top school makes sense financially.

The Cotality research group has done a deep dive on the issue and discovered the sobering truth about school catchments areas.

They are now so expensive that investors would make more money beyond the confines of the school zone.

Speaking to The Australian’s The Money Puzzle podcast, Cotality Australia research head Eliza Owen said most leading school catchment areas carry a premium. They are dearer than similar suburbs nearby.

As a result, residential properties inside these districts are actually weaker performers than the broader market because they have already been priced so high.

“When we looked at the capital growth trend long term it turned out to be weaker,” Owen told The Money Puzzle.

“We looked at a 15-year period, and for six of the nine areas that we analysed, we found that the 15-year capital growth was lower than outside the catchments.

“We don’t really know why exactly, but we think it could be linked to an affordability issue. These areas inside catchments (had lower capital growth). We think that because they’re just inherently higher, it’s harder for them to accrue more value over time.”

However, the value proposition offered by school catchment zones, even with their more expensive prices, may be worth it for homeowners wanting top schools as opposed to investors wanting top returns.

To make the case add up for homeowners paying the premium embedded in catchment zones, Cotality subtracted the costs of school fees. Turns out, it’s a close-run thing.

According to a Cotality report: “For young families juggling tough decisions around housing and education, paying the premium could be worthwhile.”

The new report concentrated on top schools in Sydney and Melbourne and noted six of the nine regions analysed had a premium of at least $100,000 in the catchment area compared to those outside of the catchment.

Unlike independent schools’ fees, which generally rise over time, the costs of a mortgage in a top school catchment is likely to go down in real terms over time due to inflation.

Industry figures suggest that fee increases at top private schools in 2025 ranged between 5 per cent and 10 per cent: that’s two to four times the inflation rate.

Meanwhile, Futurity Invest Australia has previously estimated the national average expenditure of 13 years of private schooling at $349,000, with higher costs in Sydney, where top schools have reported fees of more than $46,000 a year.

There are also issues outside the control of the investor or homeowner. Schools have the right to change their catchment zone borders at any time.

So, if capital growth is weaker in school zones than those beyond the catchment area, that is, like-for-like properties are at least $100,000 higher, what’s the option for investors?

Owen says for all buyers it really comes down to your individual cost analysis, which is going to include your education plans.

“If you are looking at this from an investment perspective, you might be better off looking at other amenities such as new infrastructure that might be going into an area, so you can capture the value before it’s established,” Owen says.

This article first appeared in The Australian as Are good school zones a sure thing for property investors?