The impact of crime on property values: Research roundup

 
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All criminal behavior imposes direct costs to the victim and indirect costs to society at large. Some secondary impacts are harder than others to verify, however, in particular the wider economic effects that can ripple outward after a crime. Residents can avoid dangerous neighborhoods, go outside less or move elsewhere, but research has shown that criminal activity can shift between neighborhoods in ways that resemble infectious diseases. Surveillance systems have been shown to reduce crime, but only in certain contexts, and questions of whether they merely displace crime require more study.

Keith Ihlanfeldt and Tom Mayock of Florida State University note that the connection between crime and property values has a large research literature associated with it, but many studies are hampered by the fact that it is difficult to isolate the precise variables and attribute declines in value directly to crime. Their 2010 study published in Regional Science and Urban Economics, “Panel Data Estimates of the Effects of Different Types of Crime on Housing Prices,” finds that, among seven categories of crime studied, “only robbery and aggravated assault crimes (per acre) exert a meaningful influence upon neighborhood housing values.”

The size of the potential effects of crime on property values is explored in a 2012 report by the Center for American Progress. It looked at the direct and indirect costs of homicide in eight U.S. metropolitan areas: Seattle, Milwaukee, Houston, Dallas, Boston, Philadelphia, Chicago and Jacksonville. The direct annual costs of violent crime in the eight cities totaled $3.7 billion per year, an average of $320 per person per year. The impact on property values was also substantial, and the study indicates that a 10% reduction in homicides would lead to a 0.83% increase in housing values the following year.

These associations may of course vary in different socio-economic localities, and be region- or country-specific. A 2012 report by the Federal Reserve Bank of New York, “Crime, House Prices, and Inequality,” looks at how the issue plays out in Latin America. The authors found that a decrease of crime generated by heightened policing in Rio de Janeiro contributed to a fall in crime and a rise in property values: Homicides dropped 10% to 25% and robberies 10% and 20%, while the selling price of the properties increased between 5% and 10% — and was proportionally higher in low-income neighborhoods. In addition, the study found significant evidence to state that from 2008 to mid-2011, increased policing generated a 15% increase in formal property transactions.

Finally, there are unique types of crime, and associated perceptions, that have also been studied. A 2008 study in American Economic Review, “Estimates of the Impact of Crime Risk on Property Values from Megan’s Laws,” found that housing prices within 0.1 miles of a registered sex offender fall by 4% on average. The scholars, Leigh Linden of Columbia University and Jonah E. Rockoff of Columbia Business School, explain the effect this way: “In response to crime risk, residents generally have two options: they can vote for anti-crime policies, or they can vote with their feet. When individuals exercise the latter option, local response to crime will be observed in the housing market.”

Below is a selection of recent studies relating to crime and property values, both in the United States and internationally.

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“Does Crime Drive Housing Sales? Evidence from Los Angeles”
Boggessa, Lyndsay N.; Greenbaumb, Robert T.; Titac, George E. Journal of Crime and Justice, 2013, Vol. 36, Issue 3.

Abstract: “Crime presents a threat to the residential stability of neighborhoods, and researchers often attempt to measure this indirect cost of crime in terms of the impact on housing values. Some studies have found that violent crime leads to lower home prices, but the associations found between property crime and home values have been more ambiguous. This paper hypothesizes that price-based models likely underestimate the true costs of crime because such models rely on transactions to estimate prices. However, if crime inhibits sales, price indices relying on sales may provide inaccurate measures of changes in housing demand in markets characterized by very low rates of home sales. Similarly, price may be a poor indicator of crime-induced shifts in demand in markets characterized by elastic supply. To address this, we measure the impact of violent, property, and overall crime and changes in crime on the rate of housing transactions across Los Angeles neighborhoods between 1993 and 1997.The results indicate both higher vacancy rates and higher levels of crime in the previous year related to higher rates of housing transactions. The effect of crime inhibiting sales appears primarily due to additional violent crime in neighborhoods with high levels of vacancies and crime.”

 

“Panel Data Estimates of the Effects of Different Types of Crime on Housing Prices”
Ihlanfeldt, Keith; Mayock, Tom. Regional Science and Urban Economics, Volume 40, Issues 2–3, May 2010, pp. 161–172.

Abstract: “One of the most studied effects of crime is the impact that neighborhood crime has on housing values. A major drawback of these studies is that, although crime is undoubtedly endogenous in property value models because of either simultaneity, omitted variables or measurement error, the vast majority of studies treat crime measures as exogenous independent variables. We exploit a unique nine-year crime panel at the neighborhood level to estimate models that properly address the endogeneity of crime and allow us to overcome other specification errors that have plagued previous studies. Of the seven different types of crime we investigate, only robbery and aggravated assault crimes (per acre) exert a meaningful influence upon neighborhood housing values.”

 

“Crime and Residential Choice: A Neighborhood Level Analysis of the Impact of Crime on Housing Prices”
Tita, George E.; Petras, Tricia L.; Greenbaum, Robert T. Journal of Quantitative Criminology, December 2006, Volume 22, Issue 4, pp. 299-317.

Abstract: “Crime serves as an important catalyst for change in the socio-economic composition of communities. While such change occurs over a long period of time, crime is capitalized into local housing markets quickly and thus provides an early indicator of neighborhood transition. Using hedonic regression, we quantify this “intangible cost” of crime and extend the crime-housing price literature in several important ways. First, we disaggregate crime to the census tract level. Second, using longitudinal data, we examine changes in crime in addition to the neighborhood levels of crime. Third, we differentiate between the effects of property crime and violent crime. Fourth, we also disaggregate our sample into groups based on per capita income of the census tract. Finally, we show that it is vital to account for the measurement error that is endemic in reported crime statistics. We address this with an instrumental variable approach. Our results indicate that the average impacts of crime rates on house prices are misleading. We find that crime is capitalized at different rates for poor, middle class and wealthy neighborhoods and that violent crime imparts the greatest cost.”

 

“Housing Prices and Crime Perception”
Buonanno, Paolo; Montolio, Daniel; Raya-Vílchez, Josep Maria. Empirical Economics, August 2013, Vol. 45, Issue 1, 305-321.

Abstract: “We combine data from the housing market with data from a victimization survey to estimate the effect of crime perception on housing prices in the City of Barcelona from 2004 to 2006…. Our findings suggest that crime exerts relevant costs beyond its direct costs. Indeed, a one standard deviation increase in perceived security is associated with a 0.57 % increase in the valuation of districts. Moreover, in districts perceived as being less safe than the average for the City of Barcelona, houses are highly discounted. Less safe districts have on average a valuation that is 1.27 % lower.”

 

“The Impact of the Sense of Security from Crime on Residential Property Values in Brazilian Metropolitan Areas”
Vetter, David Michael; Beltrao, Kaizo I.; Massena, Rosa. Inter-American Development Bank, June 2013.

Abstract: “Using a hedonic residential rent model for Brazil’s metropolitan areas calibrated with microdata from Brazil’s annual household survey, this study estimates that increasing the sense of security in the home by one standard deviation would increase average home values by R$1,513 (US$757), or about US$13.6 billion if applied to all 18 million households in the study area. The principal components analysis of sense of security and crime victimization variables indicates that higher-income households feel more secure from crime in the home, even though theft and robbery victimization rise with household income and rent level. Higher levels of home protection measures by higher-income households partially explain this result.”

 

“The Link Between Non-property Crime and House Prices: Evidence from U.K. Street-level Data”
Braakmann, Nils. Newcastle University, 2012.

Abstract: “This paper uses street-level data on house sales and crime rates for England and Wales to look at the existence of compensating differentials for crime risk. [It uses] non-parametric regional time trends as well as various fixed effects to control for unobserved amenities and regional economic conditions. The results suggest that each additional case of anti-social behavior lowers house prices in the same street by approximately 1% and each additional case of violent crime by 2%. Drug crime does not appear to matter, [nor] does crime outside of the respective street.”

 

“The Impact of Crime on Apartment Prices: Evidence from Stockholm, Sweden”
Ceccato, Vânia; Wilhelmsson, Mats. Human Geography, March 2011, Vol. 93, Issue 1, 81-103. doi: 10.1111/j.1468-0467.2011.00362.x.

Abstract: “This study uses data of about 9,000 apartment sales in Stockholm, Sweden, to assess the impact of crime on property prices…. Our results indicate that apartment prices in a specific area are strongly affected by crime in its neighboring zones, regardless of crime type. When offences were broken down by types, residential burglary, theft, vandalism, assault and robbery individually had a significant negative effect on property values. However, for residential burglary such an effect is not homogenous across space, and apartment prices in central areas are often less discounted by being exposed to crime than those in the city’s outskirts.”

 

“Estimating the Effect of Crime Risk on Property Values and Time on Market: Evidence from Megan’s Law in Virginia”
Wentland, Scott; Waller Jr., Bennie D.; Brastow, Raymond T. Real Estate Economics, 2012.

Abstract: “We examine neighborhood externalities that arise from the perceived risk associated with the proximity of a registered sex offender’s residence. We find large negative externality effects on a property’s price and liquidity, employing empirical techniques that include a fixed-effects OLS model, a correction for sample selection bias and censoring using a Heckman treatment, and a 3SLS model to account for simultaneity bias in the joint determination of a home’s sale price and liquidity. Additionally, we find amplified effects for homes with more bedrooms (a proxy for children) and if the nearby offender is designated by the state as ‘violent.'”

 

“Fear of Crime and Housing Prices: Household Reactions to Sex Offender Registries”
Pope, Jaren C. Journal of Urban Economics, November 2008, Vol. 64, Issue 3, 601-614. doi: 10.1016/j.jue.2008.07.001.

Abstract: “Megan’s Law requires public dissemination of information from sex-offender registries. Opponents to this controversial law have questioned whether households misinterpret or even use this information. One concern was that the information might simply induce a ‘fear of crime.’ This study finds evidence for both use and misinterpretation of the publicly available information on sex offenders. Using a unique dataset that tracks sex offenders in Hillsborough County, Fla., the results indicate that after a sex offender moves into a neighborhood, nearby housing prices fall by 2.3% ($3,500 on average). However, once a sex offender moves out of a neighborhood, housing prices appear to immediately rebound. Surprisingly, these price impacts do not appear to differ in areas near high-risk offenders labeled as ‘predators.'”

 

“Property Values, Parks and Crime: A Hedonic Analysis of Baltimore, MD”
Troy, Austin; Grove, J. Morgan. Landscaping and Urban Planning,  August 2008, 233-245.

Findings: The University of Vermont study, published in Landscaping and Urban Planning, examines the effect of crime levels and park proximity on Baltimore property values. Its key findings include: When the crime rates of parks or similar amenities are relatively low, they have a positive impact on property values. When the crime rates cross a threshold of between 406% and 484% of the national crime average, however, they begin to have a negative impact. Park size was unrelated to crime level, with all sizes of parks in the high, medium, and low crime categories. Parks located near water also varied widely according to crime levels, “suggesting that [water] amenities do not always yield positive impacts on property.” The location of high- and low-crime parks across Baltimore was found to be widely dispersed throughout the city. “Often, low-crime parks will be found very near high-crime parks without intermediate medium-crime parks in between.”

 

Keywords: crime, violence, safety, housing, real estate, property values, research roundup

    Writer: | Last updated: March 12, 2014

     

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