Wednesday, October 15, 2014

The Economics of Fear is Not Limited to Ebola

“Economic consequences also result when fear and concern change behavior…If consumers and businesses retrench…G.D.P. growth rates will fall farther.” 

- David R. Kotok, Cumberland Advisors on the economic impact of Ebola on the African economy.

This quote was in yesterday’s New York Times about Ebola, but the truth is, it could have been written about many low-income urban communities where crime is a concern. In one east coast city where LOA recently conducted a city-wide market study, developers and business owners alike cited “crime” as the number one challenge to overcome in attracting investment. Stakeholders said it again and again, loud and clear, until both real and perceived crime diminished, investors would look the other way. The effect of this fear is one that can quickly spiral out of control, feeding on itself and creating a deeper and deeper economic hole from which it can be difficult to emerge. Consider this, if few developers invest, there are no projects to use as comps for other investors. Without comps, banks don’t have much to look at when underwriting projects, and therefore shy away from what they see as risky loans. Without private financing, the public sector often tries to kick in to make up the difference – but even that is often not enough, particularly in times of increasing fiscal austerity.

The problem has been well documented over the years. In 2004, the International Council of Shopping Centers (ICSC) together with the Business for Social Responsibility asked retailers point blank, “What factors are obstacles to entry into underserved markets?” The number one factor regarded as significant to 80% of respondents was “Crime/Perceived Crime”.

Getting crime issues under control is perhaps the most significant intervention that you can make in setting the stage for successful commercial revitalization. And turning a community around often requires changing entrenched public opinion that has hardened over time – not an easy task – but one that must be addressed if communities are to see improvements and new businesses meeting the needs of local customers.

Karl Seidman, a professor of mine from my MIT days, outlines what “Clean-and-Safe” oriented districts need to do in Revitalizing Commerce for America's Cities (one of my favorite reads). The key approaches he outlines are as follows: 
  • Build relationships between the business community and the police department
  • Educate businesses about public safety and crime prevention techniques (and fund them to implement these techniques when necessary)
  • Apply crime prevention design principles (also known as Crime Prevention through Environment Design - CPTED) to the public realm - streets, sidewalks, public spaces, etc. 
  • Establish supplemental security services (which can be funded by self-taxation mechanisms such as Business Improvement Districts - BIDS)
In his book, he describes how a few communities with significant public safety concerns addressed those issues over time. 

Another great resource for ideas about crime prevention are the Metlife Foundation and LISC CSI "Community-Policy Partnership Awards". Every year they recognize community groups that are addressing crime in creative and impactful ways. You can go back to 2002 to see information about past award winners. These winners offer practitioners a treasure trove of options for crime prevention. 

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