New research allows investors to identify the neighbourhoods throughout Australia that have both the highest and the lowest crime rates. But can this data genuinely inform your investing decisions, and how can you effectively interpret it? Sarah Megginson reports
The breadth and range of information available to landlords at present is already quite impressive. From demographic and social information – think average incomes, occupation types, and the make-up, size and religious preferences of each household – to rental and capital growth facts and figures, we have access to plentiful resources to help us make investment decisions.
Now, a new set of data aims to help homebuyers gain an understanding of the level of risk a suburb could pose in terms of property crime, vehicle theft and social perceptions.
Using authoritative information sourced from the National Motor Vehicle Theft Reduction Council and Australian Bureau of Statistics (ABS), Map Data Services (MDS) analyses a number of different elements of crime to come up with a “risk score”; 1 is the lowest end of the scale and 20 is the highest.
The scores can be used to gauge the risk of vehicles being stolen, households burgled and even how safe residents feel in a particular area.
Cassandra Barker, general manager of MDS, says the data can help investors paint a picture of an area’s suitability for prospective tenants, adding that their aim in providing the nation-wide crime statistics is to “equip buyers and real estate agents with important insights about theft, break-ins and safety ratings”.
“The data takes into account the number of motor vehicle thefts, or the likelihood of a car being stolen, as well as household crimes, which include breakins and attempted break-ins, malicious damage and theft,” Barker explains. “It’s important to be clear that the household crime information relates to the property only; it’s not about crime as assaults.”
As well as crime levels, MDS also analyses information such as average income levels and local commute times, which allows buyers to gain a broader understanding of a particular neighbourhood.
How are these crime stats compiled?
Data is sourced from the ABS and the National Motor Vehicle Theft Reduction Council, which refreshed its data early in 2014. “We then used the actual crime victimisation table from the ABS for 2009 and 2010, and interpreted it in association with other geo-demographic information,” Barker explains.
Projection work is then done by statisticians and demographers, to keep the data up-to-date.
The two different data sets are combined and evaluated under three pillars:
1. Motor vehicle thefts:
This relates to the likelihood of a car being stolen in this area. This could relate to a resident’s location or it could also relate to a car park, shopping centre, workplace, or even when someone is visiting a friend.
2. Household crime:
Data about break-ins, theft and property damage, related to where each person resides.
3. Social disorders:
This covers a range of anti-social behaviours including public drunkenness, rowdy behaviour and noisy neighbours.
Risk ratings are created. “All of this information is modelled and formulated and for each type of property crime, a suburb is assigned a risk score. The risk scores are rated between 1 and 20, with a higher score indicating a greater risk of a household being the target of property crime,” Barker says. “There are 13 elements that have this risk score applied to them. These scores are then totalled to provide an overall risk factor for a suburb, giving each area a total score out of 260.”
- 13 crime elements
- Risk rating of 1-20
- = 13 lowest crime ranking score
- = 260 highest crime ranking score
How can investors use this data effectively?
It’s important to properly research potential investment locations, as it allows property investors to “reduce the risk of making a $350k+ mistake,” says property advisor Andrew Crossley, author of Property Investing Made Simple.
“This type of data is useful as it can be a prompter for further investigations, to help you understand more about both the accuracy of the information, and also what is causing the relationship between the demographic and the crime statistics,” Crossley explains.
“Crime is not the only element to investigate in an area and data can easily be misinterpreted, if an investor doesn’t look at what may be happening in an area at that time.”
If the crime trend is downward, he adds, “it could be a sign the area could be
going through a gentrification process and it may be a good time to invest.
Crossley says that the crime trend is important, but looking at crime statistics captured at a moment in time is less so. “Criminals do not affect the whole area – there are usually a few perpetrators causing these statistics and a gang or two. For instance, Cremorne in NSW at one moment in time had a crime wave, but it was only for a few months, so if an investor avoided Cremorne based on the information representing crime for a moment in time, they would have made a huge mistake in hindsight,” he says.
“Also, whilst a lower socio-economic area attracts more crime, particularly theft, it doesn’t mean the whole area is to be avoided. Williamstown in Victoria used to have a stigma, as did Broadmeadows, yet both have seen excellent growth.”
What’s more, even within a small suburb, there are always “streets to avoid and streets that are more desirable”, says buyer’s agent and property specialist Paul Wilson from We Find Houses.
“I heard recently that there are some areas in Brisbane where the streets within suburbs nearest to the railway station had a higher crime rate, because it was easier for the criminals to hop on the train and get away after breaking into a property,” he explains.
“We know for a fact that there are markets within markets, and there’s quite a mixed demographic within each suburb, so a crime rate in a concentrated area could be having a distorted impact on the overall suburb.”
Investors should be careful not to run with data like this without doing further investigation, he adds.
“Nothing beats speaking to people who are in the market. When we’re researching an area as part of our due diligence, we’ll ring local property managers and ask for their opinion. The property manager might say, “We don’t manage properties in that street – but we do look at properties the street over.” That kind of feedback is very telling.”
How this data could impact your…
Lenders have long used data to help them determine the risk a particular borrower poses to them, confirms Jessica Darnbrough, national spokesperson, Mortgage Choice – which is why having this type of data on hand could “absolutely” have an impact on your ability to finance a deal.
“Both a lender’s mortgage insurer and the lender itself will look at whether a property has the ability to be rented out easily and successfully, with low vacancy rates to ensure continued income,” she explains.
“A high crime rate could put tenants off from residing in the property, which can have a negative impact for the landlord.”
Lenders also tend to look at the resale value of a property, as they want to make sure it has strong resale value, Darnbrough adds. “Anything that can impact the resale value of a home, by putting its appeal in question, is what they are interested in.”
Because all insurance policies are issued based on a perception of risk, property insurers will routinely evaluate socio-economic and geo-demographic information such as this when calculating your insurance premium.
“If you’re buying into an area that is a high-risk, well-known crime spot and there is a very big perception of that, it means there have been a lot of reports of property and cars stolen and damaged, and probably a high incidence of public disorders as well,” Barker explains.
“Insurers take this information and use it to help make decisions about
factors that could influence their assessment of risk.”
An area that has experienced a high rate of malicious property damage from tenants, for example, is not altogether enticing from an insurer’s perspective.
So if you buy into a suburb that is classified as a 'high risk' area for crime, there’s a good chance you’ll end up paying more to insure it.
When deciding on your next investment, you’ll analyse all sorts of information to make sure that the deal stacks up financially. But savvy investors also take the next step of ensuring that the property they are reviewing is appealing to local tenants – from its size and style, to its unique features and quality – and will therefore be a sought-after rental home for years to come.
This data can become a powerful resource in your investor toolkit, as it can help you make informed decisions when reviewing your next investment’s suitability.
“If you were looking to buy a house suitable for a young family, and the suburb you’re looking at has a high score in terms of social perception – which could be drunken behaviour, or people hanging around in groups – then that might not be the right environment for a young family,” Barker explains.
“It can even be helpful when looking at specific property features for car theft could make property buyers wonder, 'Is my car safe parking on the street, knowing the home doesn’t have a car spot?’ A house with a car park can become seriously sought-after; some people are prepared to pay up to an extra $100,000 to get off-street parking.”
This feature is an excerpt from Your Investment Property's August Issue. To read the complete feature, you may purchase the issue or sign up for a subscription.