Violent crime reduction equals billions in home value gains

A 10% reduction in violent crimes could result in billions of dollars in home price appreciation for several major cities, according to a study from the Center for American Progress.

Kevin Hasset, director of economic policy studies for the American Enterprise Institute, and Rob Schapiro, chairman of economic advisory firm Sonecon, dove through new crime data from police departments and home prices collected by DataQuick and Zillow (Z)in Boston, Chicago, Dallas, Houston, Jacksonville, Milwaukee, Philadelphia and Seattle.

Murder, rape, assault and robberies have are costly for victims and the surrounding community. But Hasset and Schapiro also found a stark correlation to home values. On average, a reduction of one homicide in a ZIP Code for a given year generates a 1.52% increase in home prices the next year, according to their analysis.

“The basic idea is that crime has a big negative effect on property values and if you do a cost benefit analysis it will be a good investment and the impact on home values is statistically significant and very large,” Hasset said in a conference call with reporters Tuesday.

Since the crisis struck in 2007, American homeowners have lost more than $7 trillion in home equity, according to Federal Reserve data. This drives up the likelihood of default, reduces the amount of possible homes for sale and constricts demand.

But 2010 marked the fourth consecutive year of violent crime declines, dropping another 6% from the previous year, according to FBI data.

According to the study, just a 10% reduction violent crimes for these eight major cities during 2010, would have meant a roughly 0.8% increase in prices (click on the chart below to expand).

Marc Moriel, president of the National Urban League, said between 1994 and 2002, violent crimes in New Orleans dropped by 60%. The results were apparent not just for potential victims but for the overall economy, which could incite more investments and renewed focus in areas long ignored.

“The reality of violent crime and the perception on those numbers has been a drag on private investment and business expansion and a drag on the hospitality and tourism sector of our economy,” said Moriel, a former mayor of New Orleans. “When we made investments to crack down on violent crimes, home values improved. The tourist economy dramatically expanded.”

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