The amazing fall in urban crime rates, and the downside

The Economist has an article about the sharp decline in crime in American cities since the early 1990s, noting that there is no consensus over what caused it. This disagreement isn't that surprising since so many factors may be contributing to crime at once, and since the debate also has some ideological and political significance.

But it is really worth emphasising just how large has been the drop in crime in US cities, because it's important not just on its own terms but for what it says about where our cities are headed. The longest reliable historical record of crime in US cities is probably the homicide rate in New York City, which the late Eric Monkkonen compiled for every year between 1800 and 1999. You can find his data series here. It includes not just the number of homicides but the rate per 100,000 residents, and I have updated the series to 2011 with homicide data from the NYPD and population data from Wikipedia. 

I think there is good evidence for the theory that lead poisoning (from car exhaust and lead paint) had a lot to do with these trends, partly because it helps explain why crime rates fell not just in the US but across Europe too (see Kevin Drum on this subject, including relevant links). I'm sure improvements in policing helped too. But in a way what caused the fall in crime is less interesting than what knock-on effects it will have.

People understandably put a high value on safety and are willing to pay a price premium to live in low-crime areas. So you would expect the fall in urban crime levels to have contributed to higher urban house prices, and at least in the case of New York you would be right - this research estimates that falling crime rates explain about a third of the mid-1990s increase in NYC house prices.

These price rises show that people really value the safer urban environments created by lower crime. But higher housing costs may not be good news for everyone, especially tenants facing higher rents. If New York City had built a lot of new housing to cope with rising housing demand it would have been able to moderate (but probably not eliminate) these price increases and allow more people to enjoy living in a great city with falling crime rates, but instead higher demand fed straight into higher prices. It would be tragic if this pattern was repeated elsewhere and low-income people pushed out of cities just as they finally become more liveable.

Affordability or amenity?

Rowan Moore reads the new enormobook 'Living in the Endless City' and fishes out a good quote:

Suketu Mehta, on Mumbai, articulates the fundamental dilemma of urban improvement. No matter how appalling the overcrowding and squalor might seem, the city will continue to attract yet more people because it still offers things, such as freedoms and opportunities, that the countryside cannot. And, therefore, according to a planner quoted by Mehta, "the nicer you make the city, the larger the number of people that will come to live there".

Now, on the one hand, that's extremely obvious. But on the other hand I'm not sure we always think through the implications.

Over the past few decades city centres in richer countries have generally become better places to live, as crime has fallen and dirty industries are either priced or regulated out [1]. So demand to live in city centres has also gone up. Faced with higher demand, cities can choose to increase supply (by building more housing and offices) or to keep things as they are.

If you increase supply you are changing the environment that people have come to value. People being risk-averse, it's not surprising that they tend to resist. But not increasing supply (or, more commonly, not increasing it enough to match rising demand) means that over time, improved quality of life feeds into higher prices for housing and commercial space. Which is exactly what we have seen happen in Manhattan, and what I think is happening in London.

So cities with improving environments have a decision to make: if they try to keep their city affordable, they need to make some big changes to its built environment just as people start attaching a greater value to the status quo. Economists sometimes act like this is a no-brainer, but it really isn't. I think that people become more resistant to change in the built environment (i.e. to new housing or office supply) as its amenity value increases, and you can see why. But the implications for the long-term affordability of city centres are very serious.

[1] These two trends are two sides of the same coin, if you buy the argument that falling lead pollution caused falling crime rates - and I think I do.