Residents’ willingness to pay to avoid crime

Abstract

How much is a resident willing to pay to avoid a crime in the neighborhood? House price changes following a crime do not fully reflect the willingness to pay to avoid crime. Besides prices the market’s liquidity needs to be taken into account in this context. We detect market freezes following shootings, assaults, robberies, and burglaries. We propose a model, supported by empirical evidence, that combines the price and quantity dimensions into a single measure: economic welfare. The willingness to pay depends on the type of crime and averages between 7% and 18% of house valuations. These predictions are manifolds of the effect on prices estimated in this paper (0%–10%) and documented in the literature. Overall, our findings highlight the importance of considering market liquidity when examining the impact of crime on the real estate market.