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  • Property Prices

    Riots & major crimes - impact on prices?

    It is very sad to see the events unfolding in Hackney and Dalston with regards to the riots, and my heart goes out to the entire community and all involved.

    Seeing the scenes on TV, it did spark my thought processes about how this might impact on property prices in the area or indeed any area that is suddenly on the newsreels due to a major incident like riots, terrorism incident, or a shooting.

    How long does major social unrest and crime affect an area in terms of people wishing to live there?

    I am no expert, but I did a bit of a google search and found that a study/book done in the U.S. “Panel Data Estimates of the Effects of Different Types of Crime on Housing Prices,” finds that, among seven categories of crime studied, “only robbery and aggravated assault crimes (per acre) exert a meaningful influence upon neighborhood housing values.”

    I also came across a paper by the Centre for Economic Performance called "The Costs of Urban Property Crime" 

    http://cep.lse.ac.uk/pubs/download/dp0574.pdf 

    which stated that:

    Although no place is crime-free, the fear of crime and the direct costs associated with property crime can have particularly severe consequences in urban areas, in discouraging local regeneration and catalysing a downward spiral in neighbourhood status.

    This ‘tipping’ process has a prominent role in criminological explanations of community change and crime (Bottoms and Wiles, 1997). Policy makers in Britain apparently share this view, arguing that “neighbourhoods have been stuck in a spiral o f decline.

    Areas with high crime and unemployment rates acquired poor reputations, so people, shops and employers left.

    As people moved out, high turnover and empty homes created more opportunities for crime, vandalism and drug dealing” (Social Exclusion Unit, 2001, p.7).

    Certainly, casual observation suggests that persistently high local crime rates deters new residents and motivates those who can to move out to lower-crime rate neighbourhoods.

    We would expect this demand for low- crime neighbourhoods to be revealed in a property or land price gradient between residences in high and low-crime localities. 

    Conclusion:

    We have estimated the impact of recorded crimes in the Criminal Damage to Dwellings and Burglary in Dwellings categories on property prices in the London area, paying careful attention to identification issues.

    Crimes in the first category – including vandalism, graffiti and arson – have a significant negative impact on prices.

    Burglaries have no measurable impact on prices, even after allowing for the potential dependence of burglary rates on unobserved property characteristics. A one-tenth standard deviation increase in the recorded density of incidents of criminal damage has a capitalised cost of just under 1% of property values, or £2200 on the average Inner London property in our sample 2001.

    In annual terms, this is around £110 per year per household. Aggregating up to some £340 million per year for all 3.1 million households in the London region.

    This is a huge impact. By comparison the Safer Communities Initiative offers Crime and Disorder Reduction Partnerships in the London region16 a total of 3.7 million for 2002/2003 (Home Office, 2001), or around £1.40 per household. Our Instrumental Variables estimates, using a variety of alternative instruments, suggest the figure may be even higher.

    It is, on the face of it, surprising that prices respond more to acts of criminal damage than to burglaries given the apparent physical and emotional costs.

    The explanation we offer here is that vandalism and graffiti are important factors motivating fear of crime in the community, even though the evidence here suggests that these types of crimes are not strongly correlated with incidents of a more serious nature.

    More generally, graffiti and vandalism may be taken as signals or symptoms of community instability, disorder, lack of social cohesion and neighbourhood deterioration in general. 

    End of summary.

    The riots also reminded me about the risk of having all your eggs in one basket.  If you specialise in an area or "dominate your ground" as I believe it is called, a major incident like this could undermine your entire business?

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    It wasn't that long ago we had major riots in London.

    Areas like Croydon and Tottenham seem to be booming . In fact two of the sites burnt to the ground in Croydon have now been replaced by new  blocks of flat's those old buildings are now shiny and new with coffee shops outside . It may just be a London  thing .

    I was recently in Liverpool and I don't think it would have fared so well.

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    Interesting topic.

    I suspect in the short term it does have an impact when it is fresh in people's minds.

    However, longer term, I believe people forget or choose to ignore it.

    A few reactions from twitter that I have found about property so far:





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    I have friends who live in Hackney, their claim is that its 'edgey', they say it like its a good thing, I dont get it and find it quite a scary place.

    Lots of investors have done very well talking up the areas gentrification during a rising market but i dont think that will be sustained. London is struggling and stories like this are going to hurt 'edgey' areas and i think they will fall as quickly as they rose.

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    Interesting news:  House prices in Hackney have soared 8 fold in 20 years.

    New research from Halifax shows that boroughs in London continue to dominate the country's list of the most expensive property locations on a per square metre (m2) basis.

    Hackney has seen the largest increase in average prices per m2 since 1997 with prices rising from £814 to £6,942 (753%), nearly twice the London average (402%).

    Full/source article - Property Reporter

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    Thanks for the responses.  Good to see that all has calmed down now in the area.

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