It's relatively common for similar behavior on the margin; people avoid sending their kids to the super competitive high schools for a combination of competitiveness/mental health/standing-out-to-colleges reasons
Indeed. If the level of instruction between neighboring school districts is the same but one is super competitive and the other is not, I really don't see why you'd decide to buy a house in the the more competitive one. What good does it do? And that's not even taking into account the fact that kids from a weaker school might actually have better chances during admission.
I think the general sense is that being around other high-performing students would be motivating and enjoyable. But if there is a significant tradeoff in terms of admissions, I think some parents will lean in the other direction.