Stabilizing neighborhoods affected by the foreclosure crisis

1
Stabilizing neighborhoods affected by the
foreclosure crisis

• Alan Mallach
• Nonresident Senior Fellow
• The Brookings Institution

2
What is neighborhood stability?

• A stable neighborhood is one where residents and
  potential buyers feel confident that their
  investment psychological as well as financial
  is secure
• Key physical, social and economic variables
  promote neighborhood stability by
  preserving/enhancing residents and buyers
  investment in their neighborhood.

3
Key variables affecting stability

• Vacancy and abandonment
• Level of property investment
• Poverty concentration
• Home ownership rate
• Crime

4

• Destabilization takes place when changes take
  place that reduce resident and buyer confidence
  in their neighborhood
• Negative changes in any of these variables can
  trigger neighborhood destabilization.

5

• All of these variables are powerfully affected by
  foreclosure particularly the link between
  foreclosures and vacancy

6
Foreclosures are sweeping the country

• Center for Responsible Lending projects nearly
  2.2 million subprime foreclosures from mid-2008
  through the end of 2009.
• Credit Suisse projects 6.5 million total
  foreclosures by the end of 2012.
• No one yet has taken full account of the
  potential impact of a deep, prolonged recession
  on foreclosures.

7
Foreclosures destabilize cities and neighborhoods

• Foreclosures significantly reduce the value of
  neighboring properties
• Increased foreclosures can lead to increases in
  violent crime in the vicinity
• Foreclosures impose significant costs on local
  governments
• These effects are less the product of foreclosure
  as such, as the result of the link between
  foreclosures and vacancy.

8
Neighborhood effects of foreclosure are uneven

• Foreclosure effects are unevenly distributed
  geographically
• Foreclosure effects vary based on legal process
  and market conditions

Northside
Phillips Central
9
1 of 8 properties in East Cleveland are REO
properties between 2005 and 2007 property
values dropped by 83
10
Impacts are greatest in weaker markets

• Owners are most likely to leave before
  foreclosure sale
• Creditor is less concerned with preserving value
  of property
• Creditor may not even finalize foreclosure,
  leaving property in limbo.
• Vacant property is more likely to be stripped and
  vandalized.

11
Youngstown OH foreclosures 2007-2008

• Weakest market neighborhoods are not always those
  most impacted by foreclosure

Areas with gt2 home mortgages per 100 1-4 family
structures in 2005 (HMDA)
12
How to address destabilization

• Prevent foreclosures
• Reduce the link between foreclosures,
  disinvestment and vacancy
• Acquire and reuse vacant properties - Federal
  Neighborhood Stabilization Program
• Address other forces working to destabilize
  neighborhood build confidence and market demand

13
Acquisition and reuse

• Using the HUD Neighborhood Stabilization Program
• Be sensitive to market conditions
• Target to need, impact and capacity
• Leverage resources
• Integrate program with other neighborhood
  stabilization and market building efforts

14
Good data is essential

• Identifying target areas
• Understanding market dynamics of target areas
• Identifying level/type of market activity
• Identifying potential target markets
• Defining strategies and making critical decisions
  around target properties
• Acquisition
• Rehabilitation or demolition
• Reuse for owner-occupancy or rental
• Short-term reuse or land banking
• Identifying most valuable complementary
  strategies
• Monitoring progress and evaluating outcomes

15

• Indicators can help establish neighborhood market
  character

Areas with lt2 home mortgages per 100 1-4 family
structures in 2006 (HMDA)
16
Market conditions should drive strategy
Little or not acquisition - allow the
market to correct itself
Acquisition to create opportunities for reuse
and neighborhood stabilization
Acquisition to land bank for future opportunities
17
Market conditions should drive strategy
18
Other factors are critically important

• Target limited resources in order to have
  meaningful stabilizing impact
• Focus on areas where conditions make impact
  possible
• Ensure that each targeted area receives enough
  investment to make impact possible
• Build on capacity to implement strategy
• Capitalize on neighborhood-based resources
  community organizations, CDCs, anchor institutions

19

• Leverage other activities to promote
  stabilization and market demand
• Crime prevention
• Build neighborhood amenities and quality of life
• Build stronger neighborhood social fabric
• Build market demand

20
Focus on outcomes

• In the end, neighborhood stabilization is not
  about the number of units acquired, rehabilitated
  or demolished it is about restoring stability,
  in terms of healthy market conditions and
  resident/buyer confidence, to the citys
  neighborhoods.

21

• Alan Mallach
• PO Box 623
• Roosevelt NJ 08555
• 609.448.5614
• amallach_at_comcast.net