Estimating the Effect of Crime Risk on Property Values and Time on Market: Evidence from Megan’s Law in Virginia

Abstract

We examine neighborhood externalities that arise from the perceived risk associated with the proximity of a registered sex offender’s residence. We find large negative externality effects on a property’s price and liquidity, employing empirical techniques that include a fixed-effects OLS model, a correction for sample selection bias and censoring using a Heckman treatment, and a 3SLS model to account for simultaneity bias in the joint determination of a home’s sale price and liquidity. Additionally, we find amplified effects for homes with more bedrooms (a proxy for children) and if the nearby offender is designated by the state as “violent.”

Keywords: Property values, Time on market, Hedonic, Megan's Law, Home Price, Real Estate Externalities

JEL Classification: H80, K42, R23, R31