PERCEPTION OF PUBLIC INSECURITY AND HOUSING PRICES IN MEXICO

This paper evaluates the impact of the perception of public insecurity on housing prices in Mexico. To that end, two dynamic panel data models involving 27 Mexican cities are assembled. The first model corresponds to the pre-pandemic period, while the second to the pandemic period. The specification of the model is based on a supply- and demand-side approach, whereas its estimation relies on the Arellano-Bond technique to address endogeneity problems. The evidence is consistent in showing that: 1) Housing prices fall as the perception of public insecurity rises, and 2) higher construction costs and income levels raise home prices. Moreover, the provision of public infrastructure and the real mortgage interest rate generate demand- and supply-side effects, so the net effect of these two variables on housing prices is negative before the pandemic and positive during the pandemic. Finally, housing prices involve a strong inertial component.