Association for Public Policy Analysis & Management

The question of how best to improve neighborhoods that lag behind has drawn considerable attention from policy-makers, practitioners, and academics. Many strategies have been proposed and tried, including subsidies, changes to tax law, investment in education, and improvements in physical infrastructure. These have yielded a bevy of studies and commentary, and there remains a vigorous debate regarding the best approaches to accomplish community development (Bostic, 2014). This paper investigates the role crime policy plays in shaping the trajectory of neighborhoods and the people that live in them. Significant research efforts have aimed to understand neighborhood crime patterns in cities across the United States and how crime affects neighborhood quality, including housing values and resident health and well-being (Taylor, 1995 for example). Much of this research was conducted in rising-crime environments, and the evidence was clear. High levels and elevating rates of crime in a neighborhood have adverse effects on neighborhood and individual quality of life. This finding begs a question: is the dynamic relationship between crime and neighborhoods symmetric? That is, if increasing crime has negative effects, does declining crime have positive effects that lead to measurable change?  If so, this would suggest that policies focused on reducing crime could be an effective and potentially important economic development tool.

In this study, we examine how private investment in neighborhoods in two cities – Chicago and Los Angeles – changed as the incidence of crime in those neighborhoods changed during the 2000s, a period when crime was declining city-wide in both places. Using detailed blockface-level data on the location of crime and private investments between 2006 and 2011, the analysis answers two questions. First, we seek evidence of whether changes in crime appear to affect private development decisions. The answer is yes. Private investment, as represented by building permit purchases, increases on blocks where crime falls in the previous 12 months. The patterns in both cities are similar despite differences in the underlying levels of crime and development during the study period. The results are robust to tests for reverse causality, threshold effects, and neighborhood differences in crime rates prior to the study period. Second, we explore whether some neighborhoods benefit more from declines in crime. The answer here is also yes. We find that neighborhoods with the highest levels of crime in 2005 are the greatest beneficiaries in terms of increases in building permit activity when crime falls. In addition, increases in investment due to decreases in crime are concentrated in neighborhoods with greater than 30 percent of residents who are minority. Taken together, these results suggest that crime-reduction policies can be an effective economic development tool, but only in certain neighborhoods facing specific circumstances.