The impact of crimes on house prices in LA County

Abstract

Purpose – This paper focusses on analysing the impact of crime on the housing market in Los Angeles (LA) County. By looking at different types of crime instead of general crime measures and controlling by spatial dimension of prices and crime as well as endogeneity, a model is developed that allows for the understanding of how a specific crime impacts the housing market transaction price. To perform the analysis, the paper merges different data sets (crime, housing transaction and census data) and then computes the distances to crucial transport modes to control the accessibility features affecting housing prices. The latter allows estimating the association of housing prices and crime in the distance and estimating the impact on housing depending on it. Design/methodology/approach – This paper focusses on the following crimes: aggravated assault, burglary (property crime), narcotics, non-aggravated assault and vandalism. The paper shows firstly how incidents of reported crime are distributed across space and how they are related to each other – thus highlighting crime models with spatial influences. Secondly, the research utilises instrumental variables within the methodology to estimate house prices using spatial analysis techniques while controlling for endogeneity. Thirdly, it estimates the direct impact of crime on house prices and explores the impact of housing and neighbourhood features. Findings – Results suggest that house transaction prices and crime are closely correlated in two senses. Housing prices are endogenously negatively associated with the levels of narcotics and aggravated assaults. For narcotics, the impact of distance is shorter (1,000 m). However, for burglary, vandalism and non-aggravated assaults, the price reaction suggests a positive association: the further away the crime occurs, the higher the prices. The paper also shows the large spatial association of different crimes suggesting that they occur together and that their accumulation would make negative externalities appear affecting the whole neighbourhood. Research limitations/implications – The use of a huge database allows interesting findings, but one limitation can be to not have longer time observations to identify the crime evolution and its impact on housing prices. Practical implications – Large implications as the relationship identified in this paper allow defining precise policies to avoid crime in different areas in LA. In addition, crime has significant but quantitative small effects on LA housing transaction prices suggesting that the effect depends on the spatial scale as well as lack on information about where the crimes are committed. Lack on information suggests low transparency in the market, affecting the transaction decision-taken process, affecting the risk perception and with relevant implications over household welfare. Originality/value – This paper relates the spatial association among crimes defining the hotspots and their impacts on housing transaction prices.