Foreclosure Home News and Opinion America’s 14.2 Million Vacant Homes: A National Crisis

America’s 14.2 Million Vacant Homes: A National Crisis

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The housing crash and the subsequent foreclosure crisis has saddled the United States with an extraordinary level of vacant properties, inflicting heavy costs to many American communities, according to Federal Reserve Board Governor Elizabeth A. Duke.

“In order to see the robust economic recovery we all want, we need to deal effectively with the large volume of vacant and distressed properties throughout the country,” said Duke. “The potential fallout of high rates of vacancy — blight, crime, lowered home values, and decreased property tax revenue — is the same for every neighborhood and community. In some areas, the private market will lead the way, while in others government will have to use precious resources wisely to catalyze recovery.”

As of the first quarter of 2013, there are just over 133 million housing units in America and 10.7 percent of them — more than 14. 2 million — are vacant all year round for some reason or another, according to the Census Bureau.

A recent study by RealtyTrac found that 45 percent of those empty foreclosures didn’t have a forwarding address. Florida leads the nation in vacant foreclosures, with 90,556. Illinois came in second with 31,668 empty distressed homes, followed by California with 28,821, and Ohio with 17,367 vacant properties.

Vacant homes are not just an isolated issue. Communities throughout the industrial Midwest struggle with vacant housing every day. In Cleveland, there are thousands of homes beyond repair in Cuyahoga County, primarily in Cleveland and East Cleveland, writes Jim Rokakis in the Cleveland Plain Dealer. There are so many derelict, severely blighted vacant properties that the city has started demolishing thousands of properties. In Columbus, there are 6,000 vacant and abandoned homes.

In Las Vegas, there are 40,481 vacant single-family homes, according to a study by Luis A. Lopez at the University of Nevada, Las Vegas. The study found that 8.4 percent of the 482,272 single-family homes in the Valley were vacant. Las Vegas also has 16,542 empty condominiums, or 20.6 percent of total inventory, and 5,137 vacant townhouses, or 12.2 percent of total inventory, according to the UNLV report.

And in Detroit the numbers of vacant properties are staggering. Once America’s capitalist dream town, Detroit now leads the nation with an estimated 79,000 vacant homes. Teetering on bankruptcy, the city of Detroit is unable to handle the avalanche of vacant homes, many slated for eventual demolition.

Part of the problem with vacant homes is that America’s home ownership rate is falling at an alarming pace, from 69 percent in 2004 to the current 65 percent in Q-1 2013, according to the Census Bureau.

Nearly 11 percent of houses in America are empty, making them a potential haven for criminals, as well as an eyesore for neighbors and a disaster for local governments, which are losing their much-needed property tax base. Vacancies have also lowered property values of surrounding properties in many communities.

So, what should be done with the millions of vacant houses in America? Should they be demolished? Should they be rented to the homeless? Or sold to investors?

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The continued increase in the number of vacated properties in many regions of the country is indicative of the underlying structural problems in the U.S. economy and society. As Adam Smith noted nearly 300 years ago, it is in high wage countries where prosperity is broad and sustainable. Smith also observed that when the laws favor landed interests over those who produce goods and services the inevitable result is unemployment and poverty. Britain was for centuries dominated by the landowning rentier class, who claimed what others produced, paid little in taxes, and saw that the costs of government were shifted to workers and owners of capital. This same social structure was brought to North America, but it took until the late 1800s for landed interests to acquire similar economic power here as in the Old World. Why this history lesson? The fundamental reason why every 18-20 years we experience an economic crisis is that the way we raise public revenue is perverse. We impose heavy tax burdens on earned income and on assets such as housing units and other buildings but reward with low effective rates of annual taxation the hoarding of and speculation in land. The Federal Reserve's policies have stimulated the demand for residential property as much as possible with mortgage interest rates that have never been as low. By purchasing all of the MBS issued by Fannie Mae and Freddie Mac the Fed takes on the interest rate risk other investors cannot. Thus, on the one hand the land markets are able to capitalize the low mortgage interest costs into high land prices. On the other hand, the banks and the GSEs and MI companies have increased down payment requirements and tightened creditworthiness standards. There is no immediate or even short-run fix to the problems we face. We need to start with tax reform. At the local level the objectives should be to exempt all property improvements from the tax base and raise all revenue from a land-only tax base. This would do more than anything else to bring down (or keep down) land prices by removing the profits from land speculation. Interestingly, there are about 25 municipalities in Pennsylvania that have moved in this direction, and the governor of Connecticut has just signed enabling legislation to give CT cities the local option to move in this direction. As for a plan to deal today with the large number of foreclosed and vacant properties, several years ago I developed a plan that could be useful. This involves the establishment of city-wide scattered-site community land trusts with the responsibility to take properties, repaid them and market them for rent or resale. I am happy to forward a copy of this proposal upon request. Edward J. Dodson (former business manager and market analyst at Fannie Mae; retired since 2005) Posted: July 25, 2013 by: edward.dodson

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