Expert Commentary

Crime, house prices and inequality: Examining Rio de Janeiro’s favelas

2012 study from the Federal Reserve Bank of New York on how increased policing in Brazil's favelas can lead to economic benefits and decreased inequality.

Research on crime in the developing world has shown that there are sizable implications for a nation’s GDP, and high levels of violent crime can significantly affect the poor and exacerbate inequality.

For example, low-income communities on the outskirts of major cities in Brazil, known as favelas, have suffered because they have often been used as bases for the drug trade. This illegal commerce has led to conflicts between gangs over territory, and subsequently reduced both the safety and value of homes in these areas over time. In 2007, a new reformist government was elected in Rio de Janeiro and among its priorities were reducing violence and improving security. In late 2008 the government introduced the Unidade Pacificadora du Policia (UPP), or Pacifying Police Unit program, to address crime in the favelas as well as police corruption. Part of the UPP program involves using elite police units to drive drug gangs out of the favelas and regain control of the communities. Although the effectiveness of the program on crime rates has been measured, its effect on socioeconomic indicators is not as well understood.

A 2012 study from the Federal Reserve Bank of New York, “Crime, House Prices and Inequality: The Effect of UPPs in Rio,” attempts to determine the relationship between crime and home prices in Rio. The researchers measure this relationship by examining the effect of the UPP program on crime and utilizing data from the government of Rio, and by using detailed property price data from an online classified website in Brazil.

Key findings include:

  • Decreasing crime was shown to improve the property values of lower-income homes disproportionately.
  • Conditional on a property’s value, “progressively larger decreases in crime lead to smaller marginal improvements in housing consumption services,” and overall there was a marginal reduction in the benefits of crime reduction.
  • Since mid- 2009, homicides and robberies decreased substantially in Rio de Janeiro, with an average decrease for both crimes at 15% between mid-2009 and mid-2011.
  • UPP presence in an area was associated decreased homicides by an average of 10% to 25% and robberies by an average of 10% to 20%. At the same time, house prices and apartment sales prices increased by an average of 5% to 10%.
  • The Gini coefficient, used to measure the level of inequality in housing prices in Rio, fell from 0.28 in early 2010 to 0.265 in mid-2011. This is a significant reduction in housing inequality within this time period.
  • From 2008 to mid-2011, the UPP program accounted for “15% of price growth in Rio’s formal property markets,” which is linked to the programs effect on crime reduction.

Overall, the study finds that the UPP program was not only successful in reducing crime in Brazil, but also in reducing housing inequality by helping the improvement of property values in low-income neighborhoods. The study concludes that “the UPPs in Rio demonstrate that crime reduction can play a role in reducing economic inequity, operating through the distribution of wealth. In principle, this should be an important consideration for crime- and conflict-laden regions elsewhere.”

Tags: crime, safety, drugs, policing

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