The Effect of Crime on Residential Rents and Property Values

The central purpose of this investigation is to remedy the defects of the direct estimate approach of the costs of crime to victims.* Traditionally, this method has included such costs as (a) the estimated market value of the goods and property stolen or destroyed, (b) the loss of earnings due to personal injury or death, and (c) crime prevention expendi tures.2 There are many inherent defects in these kinds of estimates, several of which are important to mention here. First, the market value of prop erty or goods does not measure their true value to individuals when the consumer reservation de mand price exceeds the market price. Second, the loss of earnings is neither the only nor, perhaps, the major cost involved in personal injury crimes. The price people would have to be paid to submit willingly to crimes against their person would no doubt exceed their lost pecuniary earnings. Third, the empirical identification of crime-avoidance ex penditures is not always easy. When, for example, is a taxi ride home crime-related and when is it not? Finally, the fear of crime which usually does not manifest itself in ultimate actual victimization is a true cost. To the extent that people are risk averse, the expected value of all losses will under state the cost of crime to the individual. The examination of the impact of crime on rents and property values undertaken here can, in principle, capture all of these costs. The housing market is essentially an implicit market on which people reveal the costs of crime as they themselves perceive them. Consequently, it is thereby possible to obviate the problems inherent in an outside observer attempting to assign costs independently of the behavior of the individuals. Improvement in the accuracy of crime-cost estimations can have at least two important con sequences. We can begin to acquire the data neces sary for first, the determination of optimal crimi nal penalties, as well as, second, the determination of optimal crime prevention expenditures by public agencies. This is, of course, only a beginning, for