A Look At The Relationship Between Crime and Home Value Appreciation
The big topic recently in national news is that of defunding the police. There are many views about this both pro and con, however, because I am in the real estate appraisal business it made me think about what effect doing this might have on home values.
We already have numerous examples of what a reduced police presence would look like. The recent CHOP zone (formerly known as CHAZ) in Seattle, which had no police presence, produced chaos and murder before it was broken up on July 1, 2020.
There are other examples as well across the nation where police departments took a standoffish approach during civil unrest, allowing protestors free reign in destroying and burning public property.
With reduced police funding we can expect there to be less police presence, which could possibly result in criminals feeling emboldened due to less chance of being caught. This may result in higher crime statistics and if this is the case it could very well negatively affect home values in these areas.
Nobody wants to be a victim of crime, so will home buyers stay away from areas where the police have been defunded? If something like this happens it could substantially impact the value of real estate.
While I am not an expert in crime rate statistics and its effects on society I thought I would throw out several things to consider as it relates to home values. The market value of a home is determined by supply and demand.
There are many things that factor into the demand for something. Generally speaking, demand has a direct correlation with the positive features that an area offers.
Access to popular modes of transportation as well as shopping and entertainment can create demand for a certain area. Good school systems also drive demand in most areas.
Conversely, negative features can reduce demand for an area. Crime is generally seen as an unfavorable characteristic so the more crime you have the more of a negative impact this can have on the real estate market.
Here are my thoughts on the possible consequences of the defunding of police. I’d like to hear what you think about this subject as well so please leave a comment below.
1) Reduction in demand due to fear of crime – People may not want to move to an area with a high crime rate so this could lower the number of potential buyers for homes in areas of decreased law enforcement. As I noted previously, if there is less of a police presence, crime has a better chance of flourishing.
The communities that choose to invest in law enforcement may find an increased demand for homes and greater appreciation in property values.
2) Insurance rates – Both auto and homeowner’s insurance premiums are based on various risk factors with rates of crime being one of
them. Consumers can expect higher insurance rates if they live in areas that have higher incidences of crime.
It is quite possible that buyers may shy away from areas with more crime because they do not want to pay higher insurance premiums. If this occurs then the demand for an area may be reduced and this could result in property values going down.
3) Decreased investor activity – Investors may not want to buy in areas where there is no strong police presence thereby depressing the investor market.
Destruction of property and arson is very real in today’s environment. If investors believe that a decreased police presence could result in their rental properties being burned and destroyed they may not want to invest in some locations, thereby perpetuating a downward spiral in economic conditions in underserved areas.
When enough investors leave an area or pass on buying these types of properties values can plummet. On the flip side, a strong police presence can result in a reduction in crime and a better environment for citizens to live and overall property values to increase.
4) Fewer options for building wealth – A source of wealth-building for many people is buying a home. Property appreciation can help contribute to this wealth unless the appreciation is stifled by reduced demand brought on by crime in an area.
If crime negatively affects the value of their home it could slow down their wealth accumulation.
In a study titled “Crime and property values: Evidence from the 1990s crime drop” completed in 2011 by Devin G. Pope and Jaren C. Pope, it was found that there was a direct correlation between crime and property values. This study took advantage of the dramatic decline in crime during the 1990s by studying how the decline related to property values.
The study found that the reduction in crime resulted in property values increasing by 7-19% between 1990 and 2000. The increases in value were even more dramatic when there were reductions in property crimes.
The increase in property values can increase even more over time based on outside factors. When restaurants and stores decide to enter a neighborhood based on lower crime rates the presence of these neighborhood support services can also contribute to overall values in the area increasing.
Finally, the study also concluded that public officials who were seeking positive urban growth should concentrate on reducing crime. This most likely cannot be done by defunding police, which only emboldens criminals and thereby increases criminal activity including violent crimes as well as theft and destruction of property.
Conclusion
This is not an easy problem to solve, however, I do believe that it cannot be solved by simply defunding police. It’s also not realistic to think that things can go on like they have been.
There is a middle ground that should be explored where there is an overhauling of old policies and procedures that have not been working. In addition, we should be supporting law enforcement because they put their life on the line every day they go to work.
Question
So what are your thoughts on the relationship between the defunding of police and its potential impact on home property values? Leave a comment below and as always thanks for reading.
Detroit 1967
This ain’t rocket science.
The defunding of police goes beyond a specific area and for a brief point in time. If police departments are defunded on a large scale basis over a larger geographic area then the negative consequences of lowered property values, as noted in the paper I referenced, could have longer-lasting and more widespread consequences that can spiral out of control. I don’t believe those that want to totally defund the police are thinking far enough ahead. A reformation of the police department’s policies and practices would go further in helping than compared to the alternative.
Great topic Tom.
However, I believe the question is rather self-evident. Leaving current politics aside, go back in time. Regardless of funding, consider the highest crime area in which you conduct appraisal work (or potentially choose not to because of that). While desirability and marketability may not be significantly impacted due to affordability, these areas would clearly not be considered the “upper end” of the value range for the market area.
Everybody has to live “somewhere” and I’m not sure defunding the police would have a significant impact on historic “war zones”. I do, however, believe it wouldn’t necessarily be cause for improvement.
Thanks for sharing your thoughts, Mark. I’m sure the areas that already have a problem with crime may not see any changes. Other areas that historically have not had much crime may see property values decreasing. I guess we’ll have to just wait and see.