Innovative ideas to rescue communities with high foreclosure rates

12.18.2012 | The housing market is showing signs of recovery.  Home prices have have stabilized since their 2009 low point and have even made small gains in recent months. Investors are beginning to sniff around again in the market. All good signs for metro areas (except maybe the sniffing around for more exotic investments redux).

However, we can’t forget the devastation that remains from the wave of foreclosures, particularly in lower-income city neighborhoods. A recent policy brief by the Brookings Institution reminds us of this hardship and calls for a federal lifeline in the form of municipal bonds and tax incentives for these neighborhoods. Other initiatives are also underway locally. But is it enough? 

As Alan Mallach and Jennifer S. Vey write in a Brooking post Dec 11:

 The scale of this problem is far too great, and the market failures too deeply rooted, for these distressed neighborhoods to recover on their own. Nor do individual cities and states have the resources needed to help rebuild their markets. …These neighborhoods need a lifeline that only the federal government can provide.

The Brookings proposal calls on Congress to establish a new Strategic Neighborhood Investment Program that includes both a “qualified neighborhood investment bond” program, and a “neighborhood investment tax credit” program.

The new Strategic Neighborhood Investment Program would directly leverage private investment in rebuilding neighborhood markets. The bond program would authorize $8 billion in qualified state and local bonding authority that could be used for demolition, property acquisition, and rehabilitation. The proposed tax credit would also leverage targeted investment in destabilized but still vital neighborhoods.

Neighborhoods surely need the help. As our own Todd Swanstrom has pointed out, each foreclosure causes homes within about 1/8 of a mile to lose from 0.5% to 2% of their value.  Foreclosures have left many communities bereft of neighbors, facing declining property values, and with growing numbers of vacant and boarded up properties that draw crime.  Foreclosures also leave municipalities with a declining tax base, delinquent property tax rolls, and growing maintenance issues. In Chicago, for example, according to a report by Mark Duda and William Apgar of the Homeownership Preservation Fund, if a foreclosed property is quickly put back on the market, the average cost to local governments is only about $430. If the home languishes and is abandoned and requires demolition, the cost to the local municipality is $34,199.

Therefore, it’s heartening to see proposals on the table for dealing with this problem. In addition to the suggestions by Brookings, cities have floated some innovative ideas as well. Land banks, for example, have become a viable option in several cities, including in the Twin Cities, Cleveland, and the south suburbs of Chicago, among others.

A land bank is an entity that can acquire, hold, manage, and develop foreclosed or tax-delinquent vacant properties.  It can provide communities with a legal tool to hold, sell, or develop these properties with the long-term interest of the community and surrounding property owners in mind.

As the Center for Community Progress explains:

“Land banks often provide marketable title to properties previously impossible to develop due to complicated liens and confused ownership histories. While land banks are generally associated with older urban communities that have significant abandonment, they are potentially just as useful to safeguard healthy communities from deterioration.”

Land banks basically assemble the “hard to sell” abandoned homes, either because they have back taxes owed or they are not attractive to buyers or investors. Because land banks can take the form of a quasi-governmental entity, they can more quickly scrub the titles clean of liens and taxes, making them easier to sell. Some land banks hang on the properties with the hopes of reselling them for a profit later. Others seek to turn them around quickly.  Overall, the goal is to  promote redevelopment and reuse of vacant, abandoned, and tax-delinquent properties; help stabilize communities; and stimulate residential, commercial, and industrial development.

Cities need more of these innovative ideas if recovery is to touch everyone. Too often the short attention spans of politicians and everyday citizens mean that neighborhoods hit hard by a disaster, a riot, years of disinvestment, or other “shocks” are left to languish once the spotlight is turned off and the media head to the next big story. The foreclosure crisis will have a long reach without some sharp incentives to rebuild.

Drive down Ogden Avenue in Chicago through stretches of Englewood and other low-income neighborhoods and you still see the vacant, abandoned lots from homes razed after the 1960s riots. That’s nearly 50 years after the fact. We can’t let that kind of abandonment happen again if we are to build vibrant, resilient metro areas for all.

As Blake Warenik writes in the most recent National Housing Council’s blog on foreclosures, “I’ll leave it to the policy folks to answer how to deal what we hope has not become a new reality, but suffice it to say that foreclosure remains the most intractable problem left in the wake of the housing bubble and the Great Recession.”


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