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.