Most northeast Ohioans are uncomfortably familiar with the visible and odious effects foreclosure, vacancy, and abandonment can have on neighborhoods. Indeed, the Cuyahoga County Land Reutilization Corporation was established in response to the growing vacancy and abandonment problems in the neighborhoods of Cuyahoga County. But the negative impact vacancy and abandonment has on Cuyahoga County’s housing market was unknown…until recently
A new study by Cleveland Fed Economists Stephan Whitaker and Tom Fitzpatrick, “The Impact of Vacant, Tax-Delinquent, and Foreclosed Property on Sales Prices of Neighboring Homes,” is the first to use vacancy and property tax delinquency data in combination with foreclosure data to obtain a more accurate measurement of property distress on the sales prices of neighboring homes. Generally, the researchers found that each property that has been in foreclosure at some point over the past 12 months lowers the value of all homes within 500 feet of it by an average of about two percent. But when foreclosed properties are also tax delinquent or vacant, they lower the value of surrounding homes by seven to eight percent. And the closer a neighboring property is to the affected house, the greater the impact: the researchers found average impacts increase from seven to eight percent to 16 to 22 percent per property.
Is there a silver lining to this bad news? Perhaps. Using these impacts as baselines, the authors are able to estimate the value of neighboring homes that could be recaptured by removing blighted properties. In aggregate, they estimate that eliminating all housing blight associated with vacancies, foreclosures, and property tax delinquency would result in a gain of over $100,000,000 to housing values in Cuyahoga County. This gain would immediately be realized by neighboring properties, but would eventually add to the County tax base as well. Of course, eliminating that many properties is unrealistic, as there are almost 70,000 properties that are either vacant, tax delinquent, recently foreclosed, or some combination thereof in any given month. But by focusing on removing, say, the 2,000 properties that have the largest negative impact on surrounding home values, more than $26.5 million in value can be gained.
This research highlights the important role played by Ohio’s land banks in helping communities reduce blight. Once foreclosure rates return to more normal levels, Ohio’s cities will still have to address the long-entrenched and longer-term problems of vacancy and abandonment. Better understanding the potential value gain from removing housing blight-a gain to individual homeowners and communities alike-may open the door to creative methods for funding demolition.
Partner Feature: Federal Reserve Bank of Cleveland Researchers Examine the Cost of Foreclosure, Vacancy, and Abandonment
