Urban economists continue to use real estate prices to measure compensating differentials. In english, if a house is in a good public school district how much more expensive is it relative to a similar structure in a bad school district? There are a vast number of studies that use this same intuition to value non-market goods such as proximity to fast public transit, proximity to the coast, clean air, distance from Superfund sites etc.
The study discussed below presents a novel empirical approach to study a new "local public bad" (whether a sex offender live close to you). This type of study will estimate for the marginal home buyer how much of a price discount must you offer them to live near such a weirdo. If I'm highly risk averse and I have several young children, there might be no price such that I would buy a house to live next to this guy. Clearly in this case, I would not be the "marginal buyer".
This paper adds to a recent literature on how the public responds to "report cards" issued by government. Other examples include school report cards (see the work of Figlio) and work in Los Angeles on public health report cards for restaurants (i.e does the restaurant have mice and bugs) see the work of Leslie of Stanford. Market prices and outcomes do respond to this new information.
In the case of the sex offenders below, do they over-respond? People are bayesians --- what is their subjective probability that the offender will be a repeat offender and put their children at risk? Or is the price discount a reflection of other neighbors laughing at you that you live near the weirdo?
Megan's Law Hits Local Property Prices
"When a sex offender moves into a neighborhood, houses within a one-tenth mile area around the sex offender's home fall."
If a registered sex offender, reformed or not, moves into your immediate neighborhood, it's bad financial news. The potential price for your home likely has been trimmed substantially.
Economists Leigh Linden and Jonah Rockoff measure the impact of living in close proximity to such a convicted criminal in There Goes the Neighborhood? Estimates of the Impact of Crime Risk on Property Values from Megan's Laws (NBER Working Paper No. 12253). They combine data from the housing market with data from the North Carolina Sex Offender Registry to find that when a sex offender moves into a neighborhood, houses within a one-tenth mile area around the sex offender's home fall by 4 percent on average (about $5,500), while those further away show no decline in value. "These results suggest that individuals have a significant distaste for living in close proximity to a known sex offender," the authors conclude.
Crime is predominantly a local issue, with the majority of both violent and non-violent offenses taking place less than one mile from a victim's homes. Most government expenditures on police protection are local. They add up to more than $50 billion a year across the nation. Residents can respond to more crime by voting for anti-crime policies, or by moving away.
One popular anti-crime effort is a body of legislation known as Megan's Laws. In 1994, a seven-year-old girl named Megan Kanka was brutally raped and murdered by her next-door neighbor. The man had been convicted in 1981 for an attack on a five-year-old child and an attempted sexual assault on a seven-year-old. But none of his neighbors knew these facts. Megan's Laws require the notification of the public regarding the location and description of convicted sex offenders. By the imposition of such a post-prison requirement, these laws represent a significant change in the legal practice of dealing with convicted criminals after they have been released from jail. This provision has made these laws extremely controversial and subject to numerous court challenges. Two cases reached the Supreme Court. It upheld the relevant laws as legitimate civil regulation, rather than retroactive criminal punishment, in response to the recidivism threat imposed by sex offenders on the communities in which they live.
A 1994 federal law, the Jacob Wetterling Crimes Against Children and Sexually Violent Offender Registration Program, created a mandatory state requirement for the registration of sex offenders. It threatens non-complying states with a reduction of federal grants for state law enforcement efforts. The legislation was extended in 1996 to require the dissemination of information in the registry.
By now, all 50 states maintain a registry making some information available to the public. However, the method of compliance varies significantly. Forty-six provide public Internet access to the offender registry. Louisiana has perhaps the most aggressive notification law. It requires offenders to, "give notice of the crime for which he was convicted, his name, and his address to at least one person in every residence or business within a one mile radius of his residence in a rural area and a three tenths of a mile radius in an urban or suburban area."
In North Carolina, the "Amy Jackson Law" requires all individuals released from prison on or after January 1, 1996 -- the date of the law - for offenses of kidnapping, prostitution, sexual exploitation of a minor, or sexually violent offenses against anyone, to register. It applies equally to individuals convicted in other states who move to North Carolina. Offenders are required to register within 10 days of release from prison and for 10 years after being released from prison.
Linden and Rockoff focus on Mecklenburg County where there were 518 registered offenders. They excluded offenders with addresses that could not be located on a map, offenders living in a jail or halfway-house, and offenders who had been living in their current residence for just a short period of time. Some 63 percent of the crimes of the registered sex offenders in that county are classified as Indecent Liberty with a Minor, sometimes referred to as "child molestation," and do not involve physical force or violence. Some 11 percent of the sexual offenses involved force or violence, 10 percent were rape.
The other important source of information came from the Mecklenburg County Division of Property Assessment and Land Record Management. The paper uses very detailed data on the locations of convicted sex offenders and the dates on which they moved into a neighborhood and variations over time in values of homes sold in the specific locations in which an offender chooses to live. The authors estimate that a single offender depresses property values in the immediate vicinity by $4,500 to $5,500 per home. Altogether, the presence of sex offenders has shrunk property values in the County by about $58 million.
Assuming that individuals are reacting to the increased probability of being victimized by a neighboring sex offender, the authors estimate that the victimization costs of sex offenses total more than $1 million per case. That is far in excess of estimates by economists cited in the criminal justice literature. The authors note that this large figure could be driven partially by individuals overestimating the probability of victimization, or by other costs associated with living near a sex offender (such not allowing children to play outside). Either way, Linden and Rockoff conclude there is a great willingness in the public to pay for policies that would shield residents from sexual offenders
-- David R. Francis