The Boston Experience: Estimates of the Impact of Crime on Property Values

The costs of varying levels of crime to the city of Boston are empirically examined. A theoretical model is developed to analyze the effect of crime on central city property values, and it is tested with a simultaneous model which explains both crime rates and housing values and incorporates the public sector. In the latter model, the interrelationship of the police budget, crime prevention and generation, and aggregate property values requires that the functions be designated as parts of a simultaneous system of equations for consistency and efficiency in estimation. The potential benefit to the city by decreasing crime rates is calculated by multiplying the percentage reduction of the crime rate by the elasticity of the property value variable with respect to the crime variable to get the percentage change in property values. Results indicate that a reduction in overall crime by as little as 5% may yield an increase in tax revenue of $7-30 million. As a long-term investment, increases in police expenditures seem to be economically warranted.