Has Falling Crime Driven New York City’s Real Estate Boom?

Abstract

We investigate whether falling crime has driven New York City’s post-1994 real estate boom, as media reports suggest. We address this by decomposing trends in the city’s property values from 1988 to 1998 into components due to crime, the city’s investment in subsidized low-income housing, the quality of public schools, and other factors. We use rich data and employ both hedonic and repeat-sales house price models, which allow us to control for unobservable neighborhood and building-specific effects. We find that the popular story touting the overwhelming importance of crime rates has some truth to it. Falling crime rates are responsible for about a third of the post-1994 boom in property values. However, this story is incomplete because it ignores the revitalization of New York City’s poorer communities and the large role that housing subsidies played in mitigating the earlier bust.

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