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Unexpected link found between police spending, housing prices

A first-of-its-kind study on the link between police budgeting and the housing market seemed to be a dead end—showing practically no relation between the spending on law enforcement and home transaction volume and prices, just like previous studies.

But University of Cincinnati economics professor David Brasington found surprising results when he split the data between low-income and high-income communities: large, completely opposite moves in housing prices.

Brasington, Ph.D., published a new study called "The Effect of Increased Police Spending on House Prices and Sales Volume: A Tale of Two Types of Cities." In it, he wrote that "the small or nonexistent link between house prices and crime found by the literature really just reflects the sum of large but opposite moves in house prices in different market segments."

His research, in the Journal of Real Estate Finance and Economics, found that voting to increase the police budget raises housing prices by about 13% in low-income communities, but lowers housing prices by at least 14% in high-income communities.

"Nobody had split the sample between the higher- and lower-income areas," he said. Without splitting the data, the results virtually cancel each other out. Those huge swings on opposite sides of the income range were hidden in plain sight, he said, even as economic theoretical models supported the existence of an effect of police spending on housing.

"Just intuitively, you'd think that police services would make a difference in house prices. And it just wasn't there in the data," he added, "until you split the sample."

In his study, Brasington analyzed communities across Ohio by looking into decades of votes on taxes to increase police funding by an average of 15%. He then compares that to Ohio's housing data from 1995 to 2018.

At the onset of his research, Brasington's plan was to compare police tax renewals and home sale volumes. Overall, the data showed little change in volume and prices after a police funding levy.

Even after dividing his sample by income, he says that there is seemingly no link between police spending and the quantity of houses sold in a community. But the decrease in home prices for high-income communities and increase in home prices in low-income communities remained consistent for at least five years following the police budget vote.

Brasington says that the decrease in housing prices on the high end suggests police may be overfunded in richer communities. "If you cut police taxes and services, the high end views that as a good thing," he said. "There would be an increased demand for those houses because of the tax cut and a decreased supply of houses," he added.

He also says there could be value in looking into how other types of levies impact home prices, and what these big swings on high- and low-income areas mean for the middle class, in future research.

But for lower-income communities, he says the data from this report suggests additional spending on crime-fighting could be worth it. "There's something about housing demand that says, "We need more police funds,'" he said.