One of the lingering images of the housing crisis is of streets lined by foreclosure signs, with the neighborhood suffering from signs of neglect as fewer homeowners are around to invest in the area. A new HSH.com study of state-by-state homeownership rates points to a major symptom of the neglect that occurs when homeownership rates are low: higher levels of violent and property crime.
In an effort to determine homeownership's impact on crime, the HSH.com analysis found that crime rates generally are higher in states where homeownership is low, and crime also tends to be more prevalent in states where homeownership has dropped the most in recent years. These trends are especially disturbing given that homeownership rates have fallen in most states since the start of the Great Recession.
Impact of the Great Recession
The housing crisis and the Great Recession had impacts that have been both wide-ranging and long-lasting. Homeownership levels in the average state are now 2.3 percent lower than they were at the end of 2007. Homeownership at the end of 2013 was lower than at the end of 2007 in 38 of the 50 states.
This appears to be more than a temporary, cyclical decline. After all, the recession has now technically been over for four-and-a-half years, and most of that period saw record-low mortgage rates which were engineered by the Federal Reserve in large part to bolster the housing market.
Longer-term trends in homeownership
Homeownership has yet to recover from the collapse of the real estate bubble, and looking at longer-term numbers raises the question of whether it is fair to expect it ever to recover. Currently, the national homeownership rate is 65.2 percent. That may be 4 percent lower than the all-time high reached in 2004, but it is a level that was rarely ever reached until the mid-1990s.
This longer-term perspective suggests that homeownership rates achieved during the housing boom were an artificial peak, and not a level that was likely to be sustainable.
Wide differences by state
The question of what a normal level of homeownership might be is complicated by the wide differences from state to state. Homeownership rates range from a low of 52.5 percent in New York to a high of 79.2 percent in West Virginia. Note that those highs and lows indicate that homeownership rates can have more to do with the affordability of real estate than the general affluence level of the state.
States have also had widely different experiences with homeownership since the Great Recession. From the end of 2007 to the end of 2013, homeownership rates declined most precipitously in Kentucky, where they dropped by 8.7 percent. At the other end of the spectrum, the state with the greatest improvement in homeownership over that same period was Mississippi, where homeownership increased by 4.2 percent.
Homeownership's impact on crime
In general, states with higher homeownership rates have lower crime rates. Also, those which have experienced the steepest drop in homeownership tend to have higher crime rates. This is true of both violent and property crime.
The bottom 25 states in homeownership have violent crime rates that are 17.43 percent higher than in the top 25 states for homeownership. Property crime rates in low homeownership states are 6.31 percent higher than in high homeownership states.
The 25 states that have seen the steepest drop in homeownership rates since the start of the Great Recession have violent crime rates that are 14.63 percent higher than in the 25 states where homeownership has held up best. Property crimes are 2.49 percent higher in states that have seen the biggest drops in homeownership.
Where does your state rank for homeownership and crime?
States are ranked from low (1) to high (50) for the highest rate of homeownership and the highest rate of crime. Sources of data: Census Bureau and FBI
Chicken or egg?
While there is an apparent connection between homeownership rates and crime rates, it can be tricky assigning causality in such relationships. Does low homeownership lead to higher crime rates, or does crime tend to discourage people from buying houses in the area? Also, is homeownership itself a key factor in determining crime rates, or is it just one indication of the overall prosperity of an area, which is what really drives the crime rate?
It seems to make sense that homeownership reflects the degree to which residents of an area are invested in their communities, and that investment would make criminal behavior less likely. At the very least, whether homeownership is a cause or a symptom of an area's stability, it is an important indicator of local economic conditions. Sharply falling homeownership rates should be a concern for officials and residents of those states where that condition exists.
The link between homeownership and lower crime rates suggests that homeownership should be encouraged - but only when it is affordable enough to be sustainable, and not a function of another housing bubble that ultimately leads to more disruption than stability.
You can read what professors who have studied the relationship between crime and homeownership have to say about the chicken-and-egg situation.
Richard Barrington has earned the CFA designation and is a 20-year veteran of the financial industry, including having previously served for over a dozen years as a member of the Executive Committee of Manning & Napier Advisors, Inc. Richard has written extensively on investment and personal finance topics.