Unforseen Futures for Millions of Vacant Homes in America

Investor Update: On October 9, The Wall Street Journal published a blog entitled America's 14 Million Vacant Homes, And What To Do With Them.  Elizabeth A. Duke, board governor of the Federal Reserve Bank of New York, provides some ideas.

America’s 14 Million Vacant Homes, And What To Do With Them

With all the numbers hinting at a housing market recovery (the National Association of Realtors posted another positive chart this afternoon), it’s a good time to take a look at a recent speech by Elizabeth A. Duke, a Federal Reserve board governor, talking about the challenge of what to do with the millions of homes in America that nobody seems to want.

As of the end of June there are just over 132.7m housing units in America, and 10.6% of them – more than 14m – are vacant all year round for some reason or another. That very broad number includes everything from holiday homes to places in the temporary purgatory between being rented or sold and being moved into by the new occupant. But at the pointy end of that spectrum are nearly four million homes that aren’t just sitting unsold or unrented – they’re not even on the market.

And while vacant properties are broadly decreasing in number, as more are sold or rented, that final “other” number – places simply not on the market and not being used for anything, has actually increased in the last year. And these vacant homes are bad news for all involved, bringing down property values around them, falling into disrepair, and often attracting higher crime rates and other social problems.

So what to do? A few things, Duke said.

“Some neighborhoods likely will not recover without the assistance of government, and in this time of scarce resources, it is critical that the public sector has the information and tools necessary to ensure that any assistance that is provided is effective and efficient. Doubtless there will be costs associated with solving these problems, but it is important to also consider the costs of doing nothing. For example, it costs local taxpayers to let vacant buildings decline, it costs money to tear them down, and it costs money to convert them to a better use. Ultimately, a policy of neglect will be just as–or even more–costly than finding and implementing constructive solutions to the vacancy issue. We must ask ourselves, can we create policies that fairly distribute those costs? What are the limitations? What innovations can create more effective, scalable solutions? With funding scarce, how can we identify solutions that will ultimately be most cost effective?”

Places where private investors will likely do much of the heavy lifting include areas like Phoenix, where a boom-era oversupply of new homes is gradually being bought up at low prices and turned into rental units. But other towns home to longer-term decline will need to simply tear buildings down. And for that, land banks – government or non-profit entities that own, manage and dispose of vacant land, have a role to play. While some new land bank schemes have played around with clever financing tricks, such as being given a right to a portion of the property tax generated on the property they managed once it is turned around, most will need more help with the costs involved in dealing with abandoned property. Said Duke:

“As encouraging as these new self-financing features are, land banks and municipalities are still struggling with the high costs of demolition. For example, in Cuyahoga County, home to Cleveland, Ohio, about 80 percent of the approximately 100 properties per month that the land bank acquires need demolition, but at $10,000 in average costs per demolition, the Cuyahoga Land Bank is struggling to find the resources to fund this activity. The state of Ohio recently dedicated $75 million of its direct payments from the Attorneys’ General (AG) National Mortgage Settlement to fund a new grant program for demolition of abandoned and vacant properties statewide. This $75 million still will not solve all of Ohio’s demolition needs, but leveraging public and private funds like the AG settlement or developing new national sources of bond financing could help address this local problem.”

Also worth watching in a similar vein is the saga of America’s so-called shadow inventory of housing stock yet to show up in the figures discussed here (well covered in this three-part series by our colleagues at the WSJ’s real estate team). Developments on these fronts, as governments local, state and federal work in their own ways to deal with the millions of homes the country no longer needs or wants, will be part of a housing market recovery just like a rise in new homes being built or sold.

To view the online blog, please click here.

 

About Safeguard
Safeguard Properties is the largest privately held field services company in the country. Located in Cleveland, Ohio and founded in 1990 by Robert Klein, Safeguard has grown from a regional preservation company with a few employees  and a handful of contractors performing services in the Midwest, to a national company with more than 1,600 employees. Safeguard is supported by a nationwide network of subcontractors able to perform any requested superintendence, preservation, and maintenance functions, as well as numerous ancillary services in the U.S., the Virgin Islands, and Puerto Rico.

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