Do crime rates affect property prices?

ALIA bought a house in an established neighbourhood in Kuala Lumpur a couple of years ago. There were security personnel patrolling the area. Two months after formalising the purchase, the guard patrols stopped because more than half of the residents in the area did not want to pay the monthly RM60 security fees.

Street crime and break-ins occurred, one of which resulted in the death of a youth who charged at an off-duty police personnel with several others with parangs. It was not that the neighbourhood was crime free before. It was just that some residents wanted a higher level personal security and had hoped that the rest of the community would support the cause.

Alia decided to rent out the place instead after the security services were discontinued.

In another part of the Klang Valley, a young family paid the deposit to rent a landed property after having lived for years in a condominium. They changed their mind after a drive to their “new” home one evening and discovered the area to be rather dark even at 7.30pm, despite the street lights.

While the above may be anecdotal, does the fear of possible crime affect property prices, and their yield? While there is no empirical evidence to suggest the affirmative, research in Britain and the United States between crime rate and property prices suggest that crime and the fear of possible crime does have an effect on urban property prices. The studies were not just referring to ghettos but took a broad look at different areas and types of properties.

If we consider the current property prices and the rate of crime in the Klang Valley and major cities, there does not seem to be a correlation between the two. Crime is rampant despite what the crime index indicates. And prices have moved up considerably, despite what many consider to be a general increase in crime in various parts of the Klang Valley and major cities.

Notwithstanding that, the question whether crime rate has an effect on property prices is an interesting one.

According to a 2003 research The Costs of Urban Property Crime by Steve Gibbons, published in The Economic Journal 114 (November), urban crime has effects “over and above the direct costs to victims, the costs of deterrence and the costs of law enforcement. The fear or crime', while not a uniquely urban phenomenon ... has ... a powerful influence on perceptions of area deprivation.”

The research paper divided crime into criminal damage to properties and burglary in dwellings. Gibbons concluded that criminal damage to dwellings which includes “vandalism, graffiti and arson have a significant negative impact on prices” while “burglaries have no measurable impact on prices.” He based his research on London.

He writes that while it is “surprising that prices respond more to acts of criminal damage than to burglaries given the apparent physical and emotional costs”, Gibbons explains that “vandalism and graffiti are important factors” that motivate “fear of crime in the community,” even though “these types of crimes are not strongly correlated with incidents of a more serious nature.”

Gibbons also quoted earlier studies in 1978 and 2001 which concluded that “crime rates do affect property values, although the effects may be small ...”

Another study by Stephanie Swift in 2005 found that “crime, violent and non-violent, has an affect on housing prices.” Swift chose a Florida setting.

Swift concluded that “crime does affect housing prices.” She also concluded that “residents are willing to pay more in order to keep themselves and their families out of danger.”

This may explain the emergence of gated and guarded strata projects and its non-strata variant. The more established neighbourhood has also taken to cordoning off certain roads and hiring their own security personnel although there is a tendency for such ad hoc arrangements to be temporal as not everyone in the community may want to contribute to the monthly security fees. In a strata project, owners are legally bound.

The demand for security stems from the perception that they and their loved ones will have a certain measure of security, although this is open to dispute.

If we were to broaden the question, does crime rate affect a city's liveability, the affirmative may be more apparent, although factors contributing to liveability include other variables, just as house prices are determined by various factors.

In Triumph of The City by Edward Glaeser, an urban economist and professor at Harvard University, Glaeser writes about the importance of cities. One of the features of liveability, besides a string of other factors, is the importance of personal safety and security and the perception of this security.

Concerns about personal security have been noted in a survey of international firms by the American Chambers of Commerce in South-East Asia, published in September 2012.

In that survey, 38% of Malaysian-based respondents registered concerns with personal security, a higher proportion than in the other Asean countries surveyed.

This argues for a closer look at crime prevention, for the sake of enhancing Malaysia's competitiveness so as to stimulate foreign direct investments and exports, and to give greater fundamental basis to property price increases.

In another press report, Rajiv Biswas, senior director and Asia-Pacific chief economist at IHS Global Insight Singapore, said foreign investors need a sense of comfort and security that Malaysia is a better place to do business compared to its neighbouring countries.

Hence, despite claims that the crime index is down, increasingly people near and close to us are experiencing it.

Since budget day on Sept 28, four of The Star employees have been robbed of their new car and belongings, and two of them have their houses broken into. A fifth related the incident of a brother being robbed while having drinks in a pub. The lack of personal security is no longer a perception. It is real.

Deputy news editor Thean Lee Cheng is of the view that there is a need for greater police visibility, among other crime management strategies.

By The Star (by Thean Lee Cheng)