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How Most Dangerous Metros Sway Property Values

How Most Dangerous Metros Sway Property Values
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By Thursday, 13 February 2020 09:05 AM Current | Bio | Archive

Crime is a big deal in America. Increasing crime rates in the 1960s started the wholesale migration to the suburbs, and the historic, long term decline in crime rates, which is still ongoing, brought people back to cities over the past decade.

It’s no exaggeration to say that crime shapes our cities, and can make or break literally billions of dollars in property valuations.

But what if we were measuring urban safety the wrong way this whole time? That’s the conclusion of a new study from Clever Real Estate, which used some old, conventional factors (violent crime, property crime) as well as some new, unexpected ones (water quality, transportation fatalities) to evaluate the overall safety of the 50 largest metro areas in the U.S. Their findings suggest that crime statistics alone are a poor measure of risk, and that parts of the country we think of as friendly and harmless might be the most dangerous of all.

Another interesting wrinkle to all this data is how factors like crime rate, natural disasters, and drinking water quality affect home values. Predictably, violent crime has the biggest impact on home prices, with one study from the American Center for Progress finding that for every 10% reduction in violent crime, home values went up by 0.83%. How does this translate in real dollars? Right now, the median home value in the U.S. is $244,000. If crime fell by half in this average house’s neighborhood, the house would increase in value by 4.15%, or $10,100. That’s real money on the line, and the scary part is that it’s tied to something that’s out of the homeowner’s control.

But all crime isn’t created equal. Multiple studies have found that property crime and even drug-related crime have no effect on home values. And the presence of crime can totally subvert some of our assumptions about how real estate works; for example, when crime is low, proximity to parks has a big boost on home values. But when crime goes up, that effect is reversed; the closer you are to crime-ridden parks, the lower your home value.

One factor that has nearly as much impact on home values as violent crime is the frequency of natural disasters. According to a report from RealtyTrac, a surprisingly high 43% of American homes are at high or very high risk of natural disaster; that’s nearly 35.8 million homes, or $6.6 trillion worth of real estate. That proximity to danger generates a huge downward pressure on home prices. Consider that from 2005 to 2015, homes in areas with a low or very low risk of natural disaster saw average home sale prices increases of 6.6% (for low risk) and 9.5% (for very low risk). Over that same span of time, homes in high risk areas saw prices go up a measly 2.5%, and homes in very high risk areas went up only 6.4%.

As we reveal the cities on this list, we’ll discuss how their rankings might be impacting the local real estate market. But first, a quick explanation on how the rankings were compiled.

How to Accurately Measure Danger

Nationwide, over 8 million crimes were reported in 2018, but that number is slightly misleading. Crime rates have been plummeting over the past two decades, and are at a historic low across the board; in real terms, we’ve never been safer. Still, 8 million is a big number any way you look at it.

The problems come up when you try to break that number down and calculate crime rates for individual cities. One huge problem is that, traditionally, crime rates are calculated using population numbers only from the city itself, which artificially inflates the crime rate. But if you expand the population to include the surrounding suburbs, too, and examine the entire metro area, the data makes more sense, and more closely tracks what’s actually happening on the ground. This has huge ramifications for everything from property values, to business investment, to simple consumer perceptions. Selling a house in these areas can be difficult, especially if the danger factors have negatively impacted the property values in the area.

The Clever study looks at the top 50 metro areas in the U.S., and evaluates them using a variety of factors that are weighted according to importance. By looking at property crime rate (weighted 1.5x), violent crime rate (weighted 3x), drinking water quality (weighted 1x), transportation fatalities (weighted 2x), and natural disasters (weighted 2x), to produce a more accurate risk profile for each metro area. After all, safety is about much more than just crime. If you live in a city with a rock-bottom crime rate, but an extremely high rate of transportation fatalities, and chronically unsafe drinking water, how safe are you really?

Let’s zoom in on some of the study’s findings, and look at the five most dangerous metro areas in the U.S.

Memphis

When we think of crime, many of us think of dense, sprawling, mature coastal cities like Los Angeles or New York. But the data shows that the most dangerous cities are almost all mid-sized cities in the South or Midwest, and the city in the #1 spot is no exception. Memphis might be known for BBQ, but it’s also the most dangerous metro area in America. It has the highest rates of violent crime and property crime, per 100,000 residents; it has six times more violent crime than New York City, and twice as much as New Orleans. When it comes to property crime, Memphis has a rate four times higher than Chicago does. And that’s just the tip of the iceberg.

Memphis also has the second-worst rate of transportation fatalities in the country; if you’re thinking of taking a drive down Beale Street, make sure your airbags are working. The city even scored badly on drinking water contamination and natural disasters. No matter how you look at it, Memphis is risky.

Let’s say that violent crime dropped 50% in Memphis. While that would still be in the middle of the pack as far as national crime rates go, it would make a significant impact on local home values. Using the formula above that states each 10% reduction in crime equates to a 0.83% increase in home values, which means the Memphis median home value of $96,010 would increase to just about $100,000.

Birmingham

Coming in as the second-most dangerous city is Alabama’s largest metro area, and another Southern city. Birmingham looks a lot like Memphis, with the second-highest rate of violent crime, and the very highest rate of vehicular fatalities. There are a lot of ways for your day to go wrong in Birmingham.

On the other hand, don’t worry about kids spray-painting your mailbox if you live in the Birmingham metro area; it has the second-lowest rate of property crime of all the metro areas studied, ahead of only New York City. Unfortunately, we know that property crime has very little impact on home values, while violent crime has a huge impact. If Birmingham’s violent crime went down 50%, median home values would likely go from $62.083 to at least $64,600.

Oklahoma City

This smallish, wholesome Midwestern city ranked as the third most dangerous city in America, and did it by ranking in the top ten for every category measured. It had the ninth-most violent crime, the seventh-most property crime, the fourth-most natural disasters, and the sixth-most transportation fatalities. To top it all off, OKC also had the very worst record for drinking water contamination.

We know that natural disasters put a big damper on home values. While Oklahoma’s market has been trending upwards, with a healthy 6.1% increase over the past year, that rate would almost certainly be higher if it was situated in safer surroundings. In addition, studies strongly suggest that poor drinking water quality hurts home values. One study that looked at an area of Quebec that had drinking water problems found that poor water quality caused a decrease in home values of up to 10.3%. And the higher the home’s value, the larger the impact. So while every home in Oklahoma City is taking a hit from the city’s poor drinking water, the most expensive homes are taking an even bigger hit, literally and proportionally.

Louisville

The fourth-most dangerous city in America is yet another Southern city. Like the previous entry on this list, Louisville secured this spot by ranking moderately high in almost every category; it had the 7th most transportation fatalities, the 11th most natural disasters, and the 17th highest violent crime rate.

It was notable in one category: Kentucky’s capital city ranked third in property crime. We know that property crime has very little impact on home values, though, so it’s not surprising that Louisville has been experiencing a development boom.

Nashville

One of the South’s most economically booming cities is also one of its most dangerous. Nashville sports the 6th-highest rate of violent crime in the country, and the 4th-highest rate of transportation fatalities, two data points that outweigh the city’s favorable rankings in the categories of property crime, water quality and natural disasters.

Nashville sports a median home value of $280,966, which is significantly higher than the national average. But it’s a shame that violent crime is so high, especially considering how favorable the city ranks in every other risk category. If Nashville could cut violent crime by half, projected median home value would top $292,000, and it's already impressive growth would be even stronger.

The Safest Cities in the US

At the opposite end of the spectrum, the study found that the safest metros are Denver, San Jose, Chicago, New York City, Las Vegas, Minneapolis, Buffalo, and Boston.

Denver has the very lowest rate of violent crime, the third lowest rate of property crime, and sixth lowest rate of natural disasters, and a below-average rate of transportation fatalities. Add in the stunning natural surroundings, and it’s no wonder it’s one of the hottest real estate markets in the country.

New York City has some of the lowest crime rates in the nation; it also has one of the most robust public transportation systems in the world, which explains its extremely low rate of transportation fatalities. (Public transportation is 10x safer than driving, according to some experts.) Unfortunately, it also has the highest rate of natural disasters. The Big Apple, after all, is also a big island.

Boston, Chicago, and San Jose were mirror images of the cities in the top five, with exceptionally low rankings in every category measured.

When you break down the data further, some interesting facts emerge. For example, not all violent crime is equal: in the Midwest and the South, assaults are much more likely to involve a gun, while in the Northeast, they’re much more likely to involve fists. New Yorkers may be rude, but at least they won’t shoot you.

Dr. Francesca Ortegren, Ph.D. is a Research Associate at Clever Real Estate where she focuses on helping people understand complex data, real estate, finances, business, and the economy by researching various topics, analyzing data, and reporting useful insights for general consumption.

© 2020 Newsmax Finance. All rights reserved.


   
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DrFrancescaOrtegrenPhD
It’s no exaggeration to say that crime shapes our cities, and can make or break literally billions of dollars in property valuations.
dangerous, safest, metros, property, values
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2020-05-13
Thursday, 13 February 2020 09:05 AM
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