In the working paper titled There Goes the Neighborhood? Estimates of the Impact of Crime Risk on Property Values From Megan’s Laws [pdf] by two Columbia University economists Leigh Linden and Jonah Rockoff, they found that a sex offender located in close proximity has a 4% adverse affect on property values. (Hat tip to Freakonomics)

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.

I know that there can be tremendous stigma when the location of the offender becomes readily available in public domain. On a purely economic level, the more the buyer pool is limited (buyers who will not consider such a location) the lower the value can be relative to competitive properties. I suspect this discount will become more significant (4% seems a bit low to me) as dissemination of information becomes more efficient and seller disclosure laws reach all fifty states.

On a sort of a bit of a stretch but semi-related note, several years ago, my wife and I had bid on a house that we were sort of interested in. I say sort of since the lack of inventory was making us frustrated and our choices were limited. We ended up losing the bidding war and then happened to mention the property address to a some friends a few days later. To our horror, we found out that the sellers were moving out because they had a neighbor from hell next door who was a continual source of aggravation. Imagine if we won the bidding war? Then imagine if instead, the neighbor was a sex offender? I feel that caveat emptor is not enough and that buyers need to be informed.

11 Responses to “Housing Values: 4% Impact Of A Sex Offender”

  1. Sandy Mattingly says:

    Agree with you that 4% seems a bit low for the Sex Offender Damper Effect, so I wonder if it is due to some buyers not checking the registry.

    On the other hand, I think you went off a bit far on your “sort of a bit of a stretch but semi-related note”. Without putting too much emphasis on what is obviously an aside, how far could you go with “caveat emptor is not enough and that buyers need to be informed”? How could you possibly come up with a workable disclosure standard for ‘neighbors from hell’? How could you find out if your neighbor plays Barry Manilow too loud and too late?

    In a coop or condo you might (but probably wouldn’t) find a reference in Board minutes to a problem resident, but there is no such resource for a single family home. Maybe in a small town you can ask about police reports about battling neighbors – or hang out in the barber shop – but caveat emptor is about all you are going to get.

    Sorry if I am going off on your mild rant with too heavy a keyboard….

  2. Jonathan J. Miller says:

    Yes you are right – that can’t be disclosed because its not as tangible. However, I was simply replacing the example with that of a sex offender. You save a struggle to get that bigger house only to have your investment jeopardized because of something you didn’t know.

  3. John Philip Mason says:

    Sure, we have registered sex offenders in our community (and don’t kid yourself if you think you don’t have any in yours). I don’t worry about them too much, as we know who they are and where they live. (Our local school districts monitor the registries and send out notices any time such an individual moves into the community. Interested residents can then log onto the registry site to get the name and address of the newest offender.) I’m most concerned about the questionable individuals who live amongst us who are not registered, such as predators that haven’t been caught yet, (but that’s another story).

    As for coming up with a figure regarding marketability (i.e. 4%), most of the registered individuals do not stay in community very long, as they are marked men and have trouble retaining steady jobs, housing, etc., once the word gets out. What these people need and what our children deserve is the best protection possible. These “predators” need regular counseling and monitoring, for they are mentally ill individuals, many of whom have been victims themselves, (and that too is another story).

    Lastly, I found it an interesting post, as there are so many factors that impact the marketability of real estate. As both an appraiser and salesperson I’m often asked how much this or that affects the value of a piece of property. Sometimes, despite all our efforts I have to admit “I don’t really know.”

  4. jf says:

    A similar study was done in 2002 by Profs. Larsen & Coleman of Wright State Univ in Ohio. Their findings :

    1. On average, houses located within one-tenth of a mile of a registered sex offender sold for 17.4% less

    2. houses located within between one- and two-tenths of a mile from a sex offender sold for 10.2% less;

    3. houses located within between two- and three-tenths of a mile from an offender sold for 9.3% less. (to locate offenders)

  5. jm says:

    As a homeowner trying to sell my home with a registered sex offender right next door, I can say this is financially devastating. I live in an area with excellent schools and my home is geared for beginning families, 3 bedrooms, expensive play system in yard, etc. Already we have lost 3 sales in 3 months in an area where most homes sell within 2 weeks.

    Unfortunately,we purchased a new home and moved in anticipation of selling our old home quickly only to find that our neighbor’s son is a registered offender. He is 27 and has always lived at home and isn’t going anywhere. We even asked them to have him move temporarily and they refused.

    We are now faced with a 250,000 home that is essentially worthless which is financially devastating to us. I understand the idea behind the register for sex offenders but at what cost to innocent neighbors? We are honest, law abiding citizens who are being unfairly punished for another person’s crime.

  6. Monique Waller says:

    August 1, 2006

    We too have suffered as a result of Megan’s law. We currently live in California, and have lived in our home for more than 15 years. Imagine our surprise when we discovered that our elderly neighbors had a son who was a sex offender. Our potential buyers checked the web-site. Since the web-site was only available since 2004, we were shocked to discover this new bit of information. We had no idea, and our daughters who are now 21 and 17 grew up in this neighborhood with no incidents–hopefully due to careful parenting.

    What recourse do the innocent neighbors have? Don’t we have rights as well? Do we pressure our neighbors to have their 50 year old son move? Do we disclose this information to others-who have lived here long enough- and who are certainly unaware of the situation?

    Often times, in our quest to solve problems we create other issues that we have not considered. I agree with the comment above, it is not the sex offenders who are registered that concern me, it is the neighbor who hasn’t been caught, that is of concern.

    With the vast amount of inventory on the market right now, who in their right mind would buy our home? We can hardly blame anyone for backing out of the purchase agreement.

    If anyone has any experience in this area or suggestions,I would appreciate hearing about them. Dropping our price by 4% seems doable, but if there are other strategies that someone could suggest, I would appreciate hearaing from you!

  7. rebecca sunk and sinking says:

    we purchased a home five years ago we have been remodeling it for nearly as long as we have lived here just about the time we are finishing our home to sell our elderly neighbors pasted on and the house next door goes up for sell selling for an astounding amout for this neighborhood six months later i get a notice the person so willing to pay above market is a registered sex offender. So muck for even thinking i would sell my home after reading the other comments im doomed. i

  8. Jon in NH says:

    We just learned that a community services organization is renting a property very near to us and operating some kind of residential treatment facility for (drumroll) developmentally disabled sex offenders. We have taken the issue public as this is a residential zone, but we fear that since they have more rights than we do (seriously…) that we may be stuck with them. So our value is sinking and the property owner over there is raking the state money in – where is the justice?

  9. jm says:

    It’s been 8 months since we put our house on the market and we have dropped the price 30,000, but the only offers received have been subject to our sex offender neighbor not actually living there. This is a disaster for us!! If anyone has any information on the possibility of a lawsuit against a registered sex offender for loss of property value please let me know!

  10. Good thought here... says:

    Jm…have you found out if you can sue the sex offender who brings down your property value or is the reason why you can’t sell your home? This is an interesting thought and I wonder if anyone has been able to do this, if they are not able to sell or have to lose alot of money on their home, afterall its not our fault here, its theres.

  11. jm says:

    Good thought – we have been to countless lawyers only to be told time and again that we cannot sue the sex offender. He has a right to live there. We have even considered suing the state but have been told that it would likely be a lengthy and expensive battle that would ultimately be lost. The only offer on our house without a contingency on our neighbor came yesterday at 45,000 below asking price (which we’ve dropped 30,000). These people know about the circumstances and are trying to take advantage of that. I cried myself to sleep last night trying to figure out how to explain to my kids that we have to leave our dream home in the perfect neighborhood to go back to our old house with no kids around for them to play with. They are going to be devastated and so am I.