Gentrification and the Amenity Value of Crime Reductions: Evidence from Rent Deregulation

47 Pages Posted: 9 Oct 2017 Last revised: 27 Oct 2017

See all articles by David H. Autor

David H. Autor

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Christopher Palmer

MIT Sloan; National Bureau of Economic Research (NBER)

Parag A. Pathak

Massachusetts Institute of Technology (MIT) - Department of Economics

Date Written: October 2017

Abstract

Gentrification involves large-scale neighborhood change whereby new residents and improved amenities increase property values. In this paper, we study whether and how much public safety improvements are capitalized by the housing market after an exogenous shock to the gentrification process. We use variation induced by the sudden end of rent control in Cambridge, Massachusetts in 1995 to examine within-Cambridge variation in reported crime across neighborhoods with different rent-control levels, abstracting from the prevailing city-wide decline in criminal activity. Using detailed location-specific incident-level criminal activity data assembled from Cambridge Police Department archives for the years 1992 through 2005, we find robust evidence that rent decontrol caused overall crime to fall by 16 percent—approximately 1,200 reported crimes annually—with the majority of the effect accruing through reduced property crime. By applying external estimates of criminal victimization’s economic costs, we calculate that the crime reduction due to rent deregulation generated approximately $10 million (in 2008 dollars) of annual direct benefit to potential victims. Capitalizing this benefit into property values, this crime reduction accounts for 15 percent of the contemporaneous growth in the Cambridge residential property values that is attributable to rent decontrol. Our findings establish that reductions in crime are an important part of gentrification and generate substantial economic value. They also show that standard cost-of-crime estimates are within the bounds imposed by the aggregate price appreciation due to rent decontrol.

Suggested Citation

Autor, David H. and Palmer, Christopher and Pathak, Parag A., Gentrification and the Amenity Value of Crime Reductions: Evidence from Rent Deregulation (October 2017). NBER Working Paper No. w23914, Available at SSRN: https://ssrn.com/abstract=3049761

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Christopher Palmer

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Parag A. Pathak

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