There Goes the Neighborhood? Estimates of the Impact of Crime Risk on Property Values from Megan's Laws

We combine data from the housing market with data from the North Carolina Sex Offender Registry to estimate how individuals value living in close proximity to a convicted criminal. We use the exact location of these offenders to exploit variation in the threat of crime within small homogenous groupings of homes, and we use the timing of sex offenders' arrivals to control for baseline property values in the area. We find statistically and economically significant negative effects of sex offenders' locations that are extremely localized. Houses within a one-tenth mile area around the home of a sex offender fall by four percent on average (about $5,500) while those further away show no decline. These results suggest that individuals have a significant distaste for living in close proximity to a known sex offender. Using data on crimes committed by sexual offenders against neighbors, we estimate costs to victims of sexual offenses under the assumptions that all of the decline in property value is due to increased crime risk and that neighbors' perceptions of risk are in line with objective data. We estimate victimization costs of over $1 million - far in excess of estimates taken from the criminal justice literature. However, we cannot reject the alternative hypotheses that individuals overestimate the risk posed by offenders or view living near an offender as having costs exclusive of crime risk