The Housing Chronicles Blog: Collateral damage from unfinished new home projects

Monday, April 21, 2008

Collateral damage from unfinished new home projects

When I was recently asked by the blog L.A. Land to defend the temporary change in the tax law to allow builders to recapture taxes paid in the boom years to help them weather the bust, I did so partly to gauge the sentiments of the blog's readers. The results? A big PR headache for builders, as the mail ran 40:1 against any type of bailout.

But one of the reasons I defended the 'bailout' was because when a builder goes bust, it's not just the executives and employees who are punished -- it's also the vast army of subs and suppliers, not to mention homebuyers who were buying into what they thought would be a new -- and finished -- community. While the anti-bailout folks would casually dismiss this as Rumsfeldian 'collateral damage,' I think it's a bit more complicated than people either realize or want to know. From an MSNBC story:

As America’s housing market has foundered, homeowners who bought into newly rising projects at just the wrong time have found themselves marooned in stalled, abandoned or largely unoccupied developments with little place to turn, placing a strain on them and municipalities forced to pick up the pieces.

Experts say it’s one of the least examined aspects of the housing downturn, and one that has struck many parts of the country, from areas like Las Vegas, which experienced rampant speculation and overbuilding, to cities where construction was more restrained such as the Jersey Shore and Philadelphia...

One third of over 200 cities surveyed have seen an increase in abandoned or vacant properties in their communities as well as other forms of blight, according to a report released last month by the National League of Cities in Washington.

Nearly 60 percent said lenders have not offered to help cities deal with the fallout from foreclosures and other problems in housing.

“In more cases, cities are picking up the slack by maintaining the homes, mowing the lawns and making sure that neighborhoods with abandoned housing are safe,” said Christiana McFarland, research manager at the league’s Center for Policy and Research. “It’s a strain on resources.”

More than 25,000 vacant and abandoned properties cost eight Ohio cities at least $63 million, as local governments deal with job losses and the foreclosure crisis, according to a February report commissioned by ReBuild Ohio, a coalition of local government, nonprofit and civic groups...

Like abandoned and foreclosed homes, unfinished houses and projects are not merely community nuisances. They also contribute to the glut of inventory dragging down the market...

When fewer than half of the units in a project have been sold, the developer usually retains control of the homeowners association, diminishing the clout of residents if they wish to get things done.

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