The Housing Chronicles Blog: Converting vacant homes into affordable housing

Friday, February 8, 2008

Converting vacant homes into affordable housing

While some cities such as Buffalo, NY are chasing mortgage lenders to maintain abandoned homes, in others such as San Diego and Providence, RI they're trying a different tactic: buying up vacant homes to create more affordable housing while keeping low-priced foreclosures out of the hands of potential future slumlords. From a WSJ article:

Nationwide, the homeowner-vacancy rate, which measures the number of vacant homes for sale, rose to 2.8% in the fourth quarter, the Census Bureau recently reported. That matches a record set in the first quarter of 2007 and is the highest since the government began tracking vacant homes in the 1960s.

The current vacancy rate could be the highest since the Great Depression, when an exodus of Americans left the Dust Bowl states for the West Coast, says Mark Zandi, chief economist at Moody's Data "strongly suggest that vacancies are at their highest level since the 1930s," he says, adding that the empty homes aren't only depressing property values, "they are weighing on the collective psyche of communities. ... It's kind of like playing for a losing team. It's debilitating."...

A San Diego city-county task force is considering ways to buy empty homes -- before speculators and investors swoop in -- and reserve them for lower-wage workers, many of whom were shut out of the housing boom when home prices rose out of their reach. (In December 2005, the median home price in San Diego reached $500,000.)

Jim Bliesner, director of the City-County Reinvestment Task Force in San Diego, is proposing that a nonprofit group or a local housing agency purchase homes priced under $400,000 that have been on the market for six months or more. "It would be turning lemons into lemonade," he says.

Mr. Bliesner worries that speculators will convert some low-priced, foreclosed houses into low-quality rentals. "A speculator is not going to have much of a margin to rehab these houses or upgrade them," he says. "We want to fix them up and stop neighborhood blight."...

In Providence, R.I., where roughly 750 properties have been foreclosed on or were the subject of a notice of foreclosure between Jan. 1, 2006, and Aug. 31, 2007, the mayor's office is working to have some properties transferred to local community-development corporations, which will then convert them into affordable housing and commercial space with the city's financial help. The city has set aside about $3 million to be used for these efforts this year and is looking to secure an additional $5 million of funding through federal loans.

To aid the cities that want to purchase property, the federal government is offering to help local governments identify sources of funding. The Department of Housing and Urban Development recently set up a working group with community-development organizations to discuss how to apply federal block-grant funding to facilitate the purchase of foreclosed properties. HUD this year will provide more than $5.5 billion of block-grant funding, which can be used for a variety of community-development and housing activities. Local governments may also be able to tap HUD-backed loan guarantees...

But with federal funding likely to be limited, local officials may have to devise creative ways to finance their efforts. Genesee County, Mich., which includes economically struggling Flint, uses a "land bank" to control its vacant properties.

To fund the land bank, the county treasurer buys tax liens on foreclosed properties from cities, collects the back taxes and sells some of the properties. That generates about $2 million to $2.5 million in revenue for the land bank annually to fund demolition and redevelopment.

The land bank not only generates revenue, it prevents speculators from buying and flipping houses and perpetuating neighborhood blight, says Daniel Kildee, the land bank's chief executive and Genesee County's treasurer. "We sell to people who really want to invest, not to people buying them for five cents on the dollar," he says.

Since its inception in 2002, the Genesee land bank has demolished 800 homes and built 200 single-family homes and loft apartments. This year, the land bank is spending $30 million, much of it drawn from private investment, for projects that include the renovation of two historic hotels. "If it works in Flint, one of the hardest-hit real-estate markets in the U.S., it clearly can work in stronger market areas," Mr. Kildee says.

Officials in the Cleveland area are proposing a countywide land bank. That could result in the demolition of a "significant majority" of the city's 12,000 vacant homes, says Cuyahoga County Treasurer Jim Rokakis.

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