Bringing Back the Neighborhood: How land banks can stabilize blighted urban areas in ways that the speculative real-estate market cannot

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Bringing Back the Neighborhood: How land banks can stabilize blighted urban areas in ways that the speculative real-estate market cannot

February 20, 2014 [Metroland]

In 2010, the Beach Street corridor of Flint, Mich., was pockmarked with 16 trash-filled vacant lots. A year later, this two-acre area a mile south of downtown Flint had been consolidated into Flint River Farm, the city’s largest urban farm, replete with a passive solar hoop house for year-round growing, in what had previously been a blighted stretch of food desert. The two women who farm this land own three of the lots and lease the others from the Genesee County Land Bank.

Neighbors have welcomed the endeavor—for its beauty, for the valuable food choices it offers the community, for the job prospects it has created, and for lending hope to residents who are toughing it out in one of the nation’s most famous Rust Belt cities.

In the decade since Genesee County first took steps to create its nonprofit land bank, a growing number of municipalities, counties, and states have begun to embrace land banks as a tool to systematically address vacant and abandoned properties. A land bank is an entity, public or nonprofit, with the authority to acquire vacant or distressed property, clear title and taxes, and assemble it, redeploy it, or maintain it in strategic ways, rather than based on the short-term highest bid.

Land banks offer public agencies a number of robust options to undercut dynamics in the real-estate market that often foment, rather than avert, urban blight. Properties that are too deteriorated, low-value, or constrained by title problems to be feasibly preserved or rehabbed either by the market, partnerships, or even subsidized nonprofit programs, can often be turned into assets, or at least less actively negative influences, by the intervention of a land bank.

Interrupting Speculation

Typically, abandoned properties are forced upon the open market through tax foreclosure sales, where speculators concerned with quick profits rather than long-term community viability flip them or simply let them lie fallow. Local authorities have little say in how these properties are repurposed, leaving significant percentages unoccupied, unused, and forgotten. County treasurers are typically legally compelled to put these properties’ tax liens up for sale. Where clear title to abandoned properties does not exist—often the case with tax-sale properties—public officials find their hands tied when trying to move properties back into productive use. And yet, taxpayers and their public agencies continue to shoulder the financial and social costs of these blighted properties—crime, deterioration, falling property values, and a foundering tax base.

Land banks change this dynamic. They have the legal authority to efficiently acquire, hold, manage, and develop tax-foreclosed property. They can clear liens and title problems. They can systematically assemble multiple lots and properties for productive reuse, where before a developer might have struggled to stitch together multiple parcels of land to construct senior housing or commercial space, or local governments may have strained to assemble multiple lots for a new school or parkland. They can sell properties on the open market, or to targeted purchasers such as adjacent homeowners or nonprofits. They can hold other properties off the market until the time is right, renting them out, or demolishing structures and greening lots to reduce harmful effects in the meantime.

With these powers, land banks give local governments the capacity to have some say in the path that development and reuse takes and think about redevelopment efforts beyond a single property, at the level of a block, a neighborhood, and a region.

Above all else, public land banks democratize development decisions, giving local residents and the business community the capacity to have a say in ensuring that blighted property is not just identified and regulated, but responsibly remediated to the greater good of the community. Where before, neighborhoods struggled with the consequences of neglected properties, land banks allow cities and counties to take responsibility not just for the economic consequences of blighted land, but for the process of ensuring that this land is put in the hands of those committed to responsibly redeveloping that property.

All land banks are not created equal, however. Successful land bank programs rely on four critical elements:

• a connection to the tax foreclosure process in the community as an alternative to the auction process;

• formation around the largest, most diverse market possible, typically at the county or regional level;

• decisions that result in transparent, accessible documentation; and

• a commitment to be engaged with the community and to encourage ongoing interaction with residents.

The Flint Model

Flint pioneered the modern version of the public land bank in 2002. Within a few years, land bank intervention caused surrounding property values to be restored by more than $100 million, according to a study by Nigel Griswold and Patricia Norris of the MSU Land Policy Institute.

As a first step in formally launching the Genesee County Land Bank, elected officials first had to introduce legislation that reformed the state’s obsolete foreclosure system, establishing a direct connection between foreclosed properties and the land bank, which became the primary mechanism for managing and repurposing thousands of properties.

Then, the land bank and county government created a self-financing mechanism, in which the county treasurer’s office issues short-term bonds to fund unpaid taxes, then collects the taxes to repay the bonds, effectively acting as a benevolent tax lien purchaser. That critical step ensured that vacant, abandoned properties no longer posed an investment opportunity for speculative investors, and the county was able to earn a return on its investment that could be distributed back into rebuilding its tax base.

Genesee County understood that development cannot necessarily be simply left to its own devices, particularly when a city and a region are confronting systemic dynamics like deindustrialization. In practical terms in Flint, that has meant using the land bank as a mechanism to demolish more than 1,200 blighted properties and sell thousands of others–returning millions of dollars to the property rolls. It gave Flint the power to create hundreds of units of affordable housing through sales and rentals to carefully selected buyers. While challenges still abound, the data clearly show that the land bank has played a critical role in helping to stabilize neighborhoods, deter blight, and give local residents not just hope but real practical solutions.

Embracing the Model

The Genesee County Land Bank has become a model for other programs in Michigan and across the country. Today, 37 land banks operate in Michigan–just under half of the land banks in the United States. Pennsylvania, Michigan, Missouri, Ohio, Kentucky and Georgia all have specific legislation authorizing public land banks, and about a dozen other states have development authority statutes or similar mechanisms in place that can function to some degree as land banks.

One exciting example is the Cuyahoga County Land Bank, covering the Cleveland metro area, which has been in place since 2009. In the last two years, the land bank has acquired more than 1,200 abandoned properties and crafted groundbreaking partnerships with HUD, Fannie Mae, and leading banks to take vacant land out of the downward spiral of speculation, blight and disinvestment by having low-value, obsolete properties not remain on the market or in REO status, but transferred to the land bank, with a donation to cover demolition costs. Those relationships have begun to have a profound effect in slowing the volume of what the land bank describes as “speculative trafficking in low-value, abandoned properties in Cuyahoga County.”

Cuyahoga County modeled its land bank on Genesee County’s innovations, integrating sweeping reforms in the tax foreclosure process within a leverageable funding stream. The land bank funds its operations each year with roughly $6 to $7 million dollars it collects in penalties and fees from delinquent property tax bills—dollars that previously would have gone into the coffers of tax-sale speculators.

In Kalamazoo, Mich., local officials have used their county land bank (created in 2009) for blight removal and corridor redevelopment, to foster new construction of commercial areas, to support community garden and beautification programs, and to assemble and reposition property across the city. Land banks aren’t limited to acquiring tax foreclosures. The Kalamazoo County Land Bank also has entered into purchase agreements on bank-foreclosed properties near other targeted investments, allowing the city to craft a block-by-block approach that maximizes the strategic impact of its redevelopment efforts.

The Community Role

For land banks to maximize their positive impact, it is critical for them to earn the trust of residents in distressed communities, who are often suspicious of government’s role in managing blight or being involved in real estate at all. Land bank authorities can earn the trust of community members and increase the level of community participation in the redevelopment process by providing responsible oversight and a commitment to transparency.

Residents of local communities and the business endeavors that employ them share a commitment to the long-term viability of their neighborhoods and the larger region. When these core constituencies—residents, the local business community, nonprofit partners and engaged developers—come to see land banks as partners in responsible, comprehensive redevelopment goals, land banks can bring real scale and long-term benefits to distressed neighborhoods and communities seeking a path forward to long-term economic and social well-being.