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![Page 1: Stabilizing neighborhoods affected by the foreclosure crisis Alan Mallach Nonresident Senior Fellow The Brookings Institution.](https://reader031.fdocuments.us/reader031/viewer/2022032517/56649ca45503460f949658da/html5/thumbnails/1.jpg)
Stabilizing neighborhoods affected by the foreclosure crisis
Alan Mallach
Nonresident Senior Fellow
The Brookings Institution
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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.
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Key variables affecting stability Vacancy and
abandonment Level of
property investment
Poverty concentration
Home ownership rate
Crime
Figure 4.3: The relationship between home ownership and house values in Trenton NJ
0
20
40
60
80
100
120
30 40 50 60 70 80 90 100
% of single family houses owner-occuped
Med
ian
valu
e o
f o
wn
er-
occu
pie
d h
ou
sin
g (
$000)
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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.
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All of these variables are powerfully affected by foreclosure – particularly the link between foreclosures and vacancy
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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.
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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.
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Neighborhood effects of foreclosure are uneven
Foreclosure effects are unevenly distributed geographically
Foreclosure effects vary based on legal process and market conditions
Northside
PhillipsCentral
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Market correction
Market destabilization
Market collapse1 of 8 properties in East Cleveland are REO properties – between 2005 and 2007 property values dropped by 83%
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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.
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Weakest market neighborhoods are not always those most impacted by foreclosure
Youngstown OH foreclosures 2007-2008
Areas with >2 home mortgages per 1001-4 family structures in 2005 (HMDA)
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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
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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
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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
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Indicators can help establish neighborhood market character
Areas with <2 home mortgages per 1001-4 family structures in 2006 (HMDA)
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Market conditions should drive strategy
Market correction
Market destabilization
Market collapse
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
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Market conditions should drive strategy
Market correction Market destabilization
Market collapse
Foreclosure prevention
Code enforcement
Foreclosure prevention
Code enforcement
Rehabilitation for homeownership
Selective demolition
Infill development
Selective rehabilitation for homeownership or rental
Demolition
Interim uses
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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
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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
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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 city’s neighborhoods.
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Alan MallachPO Box 623Roosevelt NJ [email protected]