Does crime drive housing sales? Evidence from Los Angeles

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.