It's a widely known truth: living in the catchment area of a good school equals expensive housing. Word-of-mouth and local reputation make certain areas educational hot spots and, consequently, houses in those areas often come with a hefty price tag. But, how does the price that families are willing to pay for a house near a good school compare with the cost of private schooling and what are parents really getting for their money? Rebecca Marriage investigates.

In the absence of local knowledge, relocating families are likely to rely on the official statistics and inspection reports to make an informed choice about a new school for their child - parents often use exam results, among other factors, to assess the quality of a school's performance. In last week's league tables it was revealed that almost 600 schools had no pupils with the A-level grades required by top Universities. In light of such evidence, who can blame families for paying through the nose for a house which is likely to secure a good education for their child?

Sir Michael Wilshaw, Chief Inspector of Schools agrees. Speaking to the Telegraph this weekend Sir Michael said, "The statistic that four independent schools and a very prestigious six form college are sending more youngsters to Oxbridge than 2,000 state secondary schools is nonsense.

"When the history of comprehensive education is written people need to say that they did as well by the most able pupils as they did by the least able." By contrast, according to the Telegraph, only 927 students were sent to the two top universities from the 2,000 lower-performing secondary schools.

In fact, Sir Michael is so outraged by the results that, in a "rapid response" to the data, he has ordered a "landmark report" into how state schools teach the most able students and to investigate how teachers are failing to stretch the most able pupils to get the best exam results.

'Chicken and Egg': the link between better schools and higher house prices

But, according to Steve Gibbons from the LSE's Centre for Economic Performance, it looks like parents "value schools not only for what they can do to raise their child's achievements but also for the quality of their intake." This can have a dramatic 'catch-22' effect on the demographic of a school, filling certain schools with the aspirational middle classes who are able to afford houses in the catchment area of a good school.

Sir Michael was witness to this as former head of the Mossbourne Academy in Hackney. "It is a chicken and egg situation," he said. "Parents in Hackney were moving their children wholesale out of the borough, particularly middle class parents, 10 years ago."

Steve Gibbons says that there is much evidence to support the strong parental willingness to pay to get their children educated in better performing schools. "A link between better schools and higher house prices is one of the most stable empirical regularities worldwide," he says. And, in another LSE study it was found that sending a child to one of the best schools would add 15 to 20% to the value of a home.

How do housing costs compare with cost of private education?

But, relative to private school this could be good value. According to Tim Harford, presenter of BBC Radio 4's More or Less writing in theFinancial Times, it corresponds to approximately £20,000.

"Since one would presumably get this money back eventually, when selling the house," he says, "the real cost is just the extra interest on a larger mortgage (or the foregone opportunity to earn interest on savings). At interest rates of 5%, that is £1,000 a year for the right to send every child in your family to a nice school, an order of magnitude less than the cost of privately schooling a single child."

This is supported by the LSE study – the evidence in the report shows that paying for state education in England through housing is still a cheaper option than paying for private education. By comparison, seven years of private schooling at the time of the study would have cost an average of £3,800 per term or nearly £80,000. So, concludes the report, state schools could still look like a good deal for parents.

What do parents get for their money?

But, which aspects of schools are driving up the house prices? Is it the quality of teaching, excellent results, pupil's peers? "A big question is what parents are actually paying for", says Steve Gibbons, "especially whether they are just looking for a school that boosts their child's achievement or something more subtle about the school environment. The answer is a little of both."

Sir Michael Wilshaw insists that better performing schools tend to push their students to achieve good exams results and that many of the schools that perform less well allow students to "coast" in mixed ability classes in order to achieve the minimum C grade required for the government's performance tables.

Steve Gibbons goes even further to suggest that, "The potential earnings benefits in later life from a good state primary education outstrip the costs of buying a house near a good school."

Families on the move are acutely aware of the benefits of finding a home near a good school, in fact, the availability of suitable schools consistently tops the charts of critical relocation challenges for families, with many choosing the school first, the house second and compromising on the commute to work. But, the choice is often very clear for parents moving with children once they start the search, and the factors determining their choice of school are likely to be influenced by many things other than school performance, especially when considering the happiness and welfare of their child.