Crime and (Price) Punishment in the Chilean Real Estate Market : The Case of Santiago

We investigate the relationship between crime and property prices in the Santiago (Chile) real estate market. Our study differs from most previous studies in many respects. First, we distinguish between two property types (single-family homes and apartments); and second, we consider twelve different types of crimes (instead of one aggregate indicator). We find that in general crime has a negative effect on property prices, but the size of this effect varies considerably depending on the type of crime. We also find that apartments respond almost immediately to changes in crime rates while single-family homes take longer to respond. And we observe that ranking different crimes based on their (price/crime) elasticities yields almost identical sequences regardless of the type of property or time-lag employed. These results have important public policy implications for they might serve as useful guide to orient and design crime-mitigating measures. Additionally—and similarly to other studies in European and American cities—we find that certain crimes (violent robbery and surprise robbery, in this case) exhibit a positive correlation with price increases: a counterintuitive result that we (like previous authors) report without offering a convincing explanation. Finally, from a methodological standpoint, this study shows the importance to rely on a two-stage least square approach (2SLS) based on instrumental variables (IV) to address the endogeneity-of-crime problem. To this end we employ different instruments depending on the type of crime. And we also demonstrate the benefits of incorporating factor analysis to explore the price-crime dynamics