CNN/Money on Foreclosure & Crime

The CNN/Money web site currently has a story about the link between crime and foreclosure rates. This relationship should come as no surprise, and the CNN/Money story is not the first source to point it out. As foreclosure rates increase, home ownership declines, and vacant houses and vacant lots become havens for criminal activity. The CNN/Money story has a new twist, however, as it reports how criminals are looting abandoned houses in a hard-hit Cleveland neighborhood for the siding, PVC, copper, and other materials within the structures.

Increased crime rates are just one externality of the subprime crisis and climbing mortgage foreclosure rates. The costs did not just fall on the lending institutions and borrowers foolish or unwise enough to make these loans. The costs also are being borne by the communities with a high incidence of mortgage foreclosures. The subprime crisis is not just a market failure that the market can correct. It's also causing losses that the market participants have no incentive to fix because the they are not the ones bearing these externalized losses.

Comments

[John Pottow]

Maybe our high foreclosure rate in Detroit explains our dubious victory in being now crowned most criminal city (take that St. Louis)!