A Downward Spiral: The Effects of Plummeting Property Values on Neighborhoods

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1 A Downward Spiral: The Effects of Plummeting Property Values on Neighborhoods Anna Berger and William Tomes Introduction The recent increase in real estate foreclosures due to the mortgage industry crisis has added to the inventory of vacant and abandoned homes across the country. 1 An increasing number of people are being forced to leave their homes due to foreclosures. According to the Census Bureau, 2.8 % of homes for sale in the United States were vacant in the fourth quarter of 2007, a record number. The problem is much worse in some parts of the country. In Cleveland and suburban Cuyahoga County, Ohio, the number of vacant single-family homes is estimated at over 15,000, or more than 10% of the area s housing stock. 2 This article addresses the problems communities are facing due to vacant and abandoned properties, many of which are related to foreclosures. It also reviews some of the responses local governments have taken to remedy these challenging circumstances and the barriers they encounter. Adverse Effects on Neighborhoods Vacant and abandoned properties have several adverse effects on a community. Empty homes depress property values, and as more homes in a neighborhood are vacated, selling a home becomes all the more difficult. Oftentimes, vacant or abandoned homes are not maintained. Banks and mortgage companies have a difficult time keeping empty homes secure and performing minimal maintenance such as cutting the grass. Homes that are not in good condition are even more difficult to sell and further impact neighborhood property values. Researchers at the Temple University Center for Public Policy found that all else being equal, houses on blocks with abandonment sold for $6,715 less than houses on blocks with no abandonment. 3 Vacant property management causes a financial strain for local governments. A disproportionate amount of government resources are consumed while little or no tax revenue is generated from these properties. 4 In jurisdictions where there is a proactive approach to addressing these properties, multiple city and county departments and nonprofit agencies are often involved. Vacant homes also pose a health and safety risk to the community. Collapsing structures, fire hazards, accumulating trash, rat infestations, and unmonitored swimming pools are just a few of the possible health and safety problems brought on by vacant and abandoned houses. In their study of neighborhood physical conditions and health, Cohen (2003) and her colleagues found that the presence of boarded-up, vacant housing units, was 1

2 associated with premature mortality and with morbidity from sexually transmitted diseases after control for other known socioeconomic correlates of these outcomes. 5 Vacant houses that are not maintained may influence crime in the community. In their 1982 Atlantic Monthly essay Broken Windows, Wilson and Kelling wrote that if a window in a building is broken and is left unprotected, all of the rest of the windows will soon be broken one unrepaired broken window is a signal that no one cares, and so breaking windows cost nothing. This sense of no one caring leads to a breakdown of community standards and, according to some experts, more serious criminal activity. 6 The broken windows theory also applies to other examples of neighborhood blight such as overgrown lots, derelict vehicles and graffiti. Police across the country contend with vagrancy and vandalism in vacant homes. Empty houses often serve as make-shift shelters for the homeless, as well as havens for drug dealers and prostitutes. Abandoned homes also are the target for thieves stealing valuable copper pipes and wiring. 7 Addressing Neighborhood Blight In many communities, issues of neighborhood blight are under the purview of code enforcement officials. In January 2008, the Institute for Public Service and Policy Research published An Analysis of Property Maintenance and Codes Enforcement in South Carolina. 8 That report summarized the codes enforcement practices of cities and counties in South Carolina. This article focuses on the various approaches code enforcement officials use in addressing neighborhood blight issues in South Carolina, and across the nation. The primary tool local governments use to address vacant and abandoned properties is the building maintenance code. 9 How aggressive communities are in using this tool in responding to incidents of neighborhood blight varies greatly. For example, the City of Albany, New York, enacted legislation in 1996 requiring rental properties to be licensed and inspected every 30 months. In order to address the increased workload, Albany trained all of the city firefighters as state-certified code compliance technicians. 10 Other examples of aggressive code enforcement tactics included: treating code violations as criminal offenses; charging a neglected vacant house registration fee; engaging in neighborhood sweeps; training neighborhood residents to inspect exteriors of vacant properties and notify property owners of violations; implementing public shaming programs. 11 Some local governments only respond to code violations when there is a complaint or an incident. In South Carolina, a majority of county governments (57%) reported having a 2

3 reactive approach to code enforcement. Other governments take a more proactive approach to code enforcement. In South Carolina, 61% of municipal governments reported having a proactive philosophy of code enforcement with an additional 10% having both a reactive and proactive approach, depending on the issue. 12 Given the increase in code enforcement cases, many communities have instituted specialized docket courts that focus solely on codes violations and quality-of-life issues. Examples are the Environmental Law Court in Providence, Rhode Island, and the Housing Court in Pittsburgh, Pennsylvania. 13 In South Carolina, 25% of the cities and 17% of the counties responding to the property maintenance and codes enforcement survey indicated having a specialized docket or livability court. The state s first court of this type was initiated by the City of Charleston in These specialized docket courts typically have a goal of issue resolution rather than a punitive philosophy and allow for quality of life issues to be addressed more quickly. Many communities use punitive sanctions to encourage codes compliance, the most common sanction being fines. In South Carolina, fines range from $200 to $1, for violations involving dilapidated housing. Local governments also charge property owners for upkeep of vacant properties, such as lawn mowing or minor structural maintenance. Collecting fines and maintenance fees can be challenging, particularly in the cases of absentee owners or where the property s ownership is in question. The most common practice for recouping these fines and fees is the property lien. According to the property maintenance and codes enforcement survey, less than a third of the local governments using this practice reported collections during FY Since these monies are not collected until the properties are sold, some jurisdictions place a tax lien on properties instead. This method increases the collection rate since the monies are collected when property taxes are paid. Table 1. Jurisdictions Using Liens as Code Enforcement Tactic Property Lien Tax Lien Municipalities 56% 22% Counties 31% 22% Source: Berger, A. and Tomes, B. (2008). An analysis of property maintenance and code enforcement in South Carolina South Carolina Local Government Rate and Practices Surveys. Columbia, SC: Institute for Public Service and Policy Research, University of South Carolina. One way in which jurisdictions can address dilapidated housing is by actively pursuing demolition of the structure before the property becomes a health and safety issue. In South Carolina, most jurisdictions still take a more cautious approach to this issue. 15 In other states, the cities of Baltimore, Maryland, and Jacksonville, Florida, have determined that boarded up residential buildings are not likely to be reoccupied and therefore pursue demolition of those structures. In Greensboro, North Carolina, properties that have been vacant for more than a year are taken before a special commission that can order repair or demolition within 90 days. 16 The City of Camden, South Carolina, recently has increased funding for a program that targets abandoned and dilapidated properties. Owners are notified about building code issues and are given 60 days for either a building or demolition permit. If the city does not receive a response, the structure is 17 demolished. 3

4 Rehabilitative measures are other methods localities use to address abandoned properties. Some argue this is a more holistic approach than simply razing the structure. In addition to addressing the issue more comprehensively, rehabilitation efforts are also a better return on the jurisdiction s investment. In a study conducted on St. Paul s (Minnesota) efforts with rehabilitation of vacant housing, a vacant lot was found to produce $1,148 in property taxes over 20 years; an unrenovated but an inhabited home generated $5,650, and a rehabilitated property generated $13,145 during this same period. 18 Another factor that impacts property values is the condition of vacant lots in the neighborhood. In addition to minimal yard maintenance, some communities have implemented cleaning and greening programs of vacant lots. These programs typically include clearing abandoned lots of debris, planting trees and shrubs, regular cleaning and mowing, and in some cases, transferring parcels to adjacent homeowners. In addition to the improving the aesthetic value, these efforts have a positive financial impact in the neighborhood. According to research conducted at the Wharton School at the University of Pennsylvania, sales prices increased as much as 30% when homes were located near vacant lots that had been cleaned and greened. 19 In Virginia, similar results were found in neighborhoods targeted by Richmond s Neighbor in Bloom Program. 20 Several jurisdictions have implemented incentive or assistance programs to stimulate neighborhood revitalization. A common strategy used is to provide grants or tax incentives to property owners who make improvements to their homes. Another method is property acquisition and transfers to a non-profit agency for redevelopment or resale. Examples include the Metropolitan Government of Urban Homestead Program in Nashville, Tennessee, and the Neighborhood Integrity Program in Richardson, Texas. Some cities have found that a key strategy for addressing these issues is collaborating with key community partners. Baltimore s Abandoned House Demolition Initiative uses community groups to identify vacant buildings for demolition. 21 Boston, Massachusetts, and Cleveland, Ohio, work with community organizations and developers on acquisition of properties for resale to non-profits and other developers. 22 In 2005, the City of Rock Hill, South Carolina, initiated a comprehensive approach for urban blight that involves various city departments and community groups, such as local beautification boards, neighborhood associations and non-profit organizations. 23 Implementation Barriers Jurisdictions often face several barriers to effectively implementing codes enforcement policies. One challenge in enforcing property maintenance codes is locating owners. Oftentimes, properties are abandoned due to the death of the owner. Ownership is then transferred to heirs who may not be aware of the property s condition or existence. In cases where the deceased owner did not have a will, the question of ownership must be resolved in probate court. Locating absentee owners poses additional challenges for jurisdictions. In South Carolina, the most common method used to locate these owners is a county tax record search. 24 Once the owners are located a notice can be posted in the newspaper and violations sent by certified or registered mail. In cases where the owner lives in another 4

5 state, the cost of serving notice may preclude the jurisdiction from pursuing the owner. Several other methods and sources of information have been used with varying degrees of success, such as titles searches and sending inquiries to homeowner associations and mortgage companies. In the instance of foreclosures, determining ownership can prove challenging. While formal ownership remains with a borrower who has abandoned the property, the lending institution retains a lien on the property that causes a dispute over responsibility for taxes and maintenance. These institutions likely do not see their role in maintaining properties on which they hold liens. This situation becomes more complex when the mortgage is sold multiple times to other banks and mortgage companies. 25 Another barrier communities face in addressing these issues is that most state laws and local ordinances protect the individual property owner without consideration of the impact on the surrounding community. A jurisdiction s ability to address property maintenance issues proactively is hampered by lengthy time frames given to property owners to correct problems as set forth in state laws. State laws that address property maintenance standards typically require minimal standards for compliance. Many jurisdictions find these minimum requirements fall short in ensuring that property conditions do not adversely affect the community. Conclusion In recent years local governments have come to the realization that abandoned properties are not just a symptom, but are a contributing factor to community decline. This issue affects more than just inner city neighborhoods. First ring suburbs, those built between the end of World War II and the end of the 1970s, also are experiencing similar challenges. 26 This article has presented a myriad of approaches used to address neighborhood blight issues. Communities have experienced varying levels of success. Community leaders and government officials may be frustrated when they do not see immediate results from their efforts. However, taking no action exacerbates the problem. In Michigan, the state has initiated a Blight Elimination program to help eight cities with their most significant blight issues. This type of state assistance may be necessary for local governments to address these issues. 27 Communities that view neighborhood blight abatement as a long- involving key term investment using a comprehensive and collaborative approach stakeholders will likely be more successful in their efforts. About the Authors Anna Berger Anna earned a Bachelor of Arts degree in Political Science from Columbia College and a Master of Public Administration degree from the University of South Carolina. Since joining the Institute for Public Service and Policy Research in 1997, Anna has devoted most of her time to the South Carolina Municipal and County Benchmarking Projects. She serves as director of the South Carolina Local Government Service Delivery Forums and provides technical assistance and group facilitation ranging from reengineering 5

6 processes to strategic planning for state and local governments and non-profit organizations. Anna also develops and conducts training programs specifically designed for government managers and leaders on performance measurement, benchmarking, process mapping, team building, group decision-making tools, and emotional intelligence. Anna has had adjunct faculty appointments at both Columbia College and the University of South Carolina. William E. Tomes Bill earned his B.S. in Psychology from Florida State University and a Masters in Human Resources from the University of South Carolina. He worked as a human resources professional in both the Florida and South Carolina state governments for ten years, before working at the Bureau of Governmental Research and Service from 1986 to Bill rejoined the Institute for Public Service and Policy Research in 1998 after working as a human resources consultant in both the private and public sectors in the United States and Canada. He has conducted training programs and written book chapters and articles on various human resource topics. At the Institute, he manages the professional certification programs for the Government Finance Officers Association of South Carolina and the Institute for Departmental Management. He also directs technical assistance projects, facilitates strategic planning processes, and serves as a faculty member for professional development programs on performance measurement, process mapping, team building, group decision-making tools, Myers-Briggs Type Indicator and emotional intelligence. Bill has adjunct faculty appointments at the University of South Carolina and Webster University. ENDNOTES 1 Orey, M. (2008, January 9). Dirty deeds. Business Week. Retrieved January 9, 2008 from 2 Corkery, M. and Simon, R. (2008, February 6). As houses empty, cities seek ways to fill the void. The Wall Street Journal, p. B1. 3 National Vacant Properties Campaign. (2005, August).Vacant properties: the true costs to communities. Washington, DC: Author, p Ibid. 5 Cohen, D. and Mason, K. (2003). Neighborhood physical health conditions. American Journal of Public Health. 93(3) Wilson, J. and Kelling, G. (1982, March). Broken windows. Atlantic Monthly. 7 Shereen, T. (2008, February 18). Foreclosed homes occupied by homeless. Washington Times. 8 Berger, A. and Tomes, B. (2008). An analysis of property maintenance and code enforcement in South Carolina South Carolina Local Government Rate and Practices Surveys. Columbia, SC: Institute for Public Service and Policy Research, University of South Carolina, p Accordino, J. and Johnson, G. (2000). Addressing the vacant and abandoned property problem. Journal of Urban Affairs. 22(3) Matarese, L., Chelst, K., Straub, F., and Forezzi, R. (2008). Bringing a Higher Level of Productivity to the Fire Service: Tales of Two Cities. Public Management. 90 (2), Op. Cit. Accordino, J. and Johnson, G. (2000). 12 Op. Cit. Berger, A. and Tomes, B. (2008), p Op. Cit. Accordino, J. and Johnson, G. (2000). 14 Berger, A. and Tomes, B. (2006). Neighborhood team concept. Best Practices Bulletin, 1 (2), Op. Cit. Berger, A. and Tomes, B. (2008), p Op. Cit. Accordino, J. and Johnson, G. (2000). 6

7 17 Riddle, M. (2008, February 19). Program targets eyesores. The State. B1, B6. 18 Op. Cit. National Vacant Properties Campaign. (2005, August), p Ibid., p Ibid. 21 Op. Cit. Accordino, J. and Johnson, G. (2000). 22 Ibid. 23 Op. Cit. Berger, A. and Tomes, B. (2006). 24 Op. Cit. Berger, A. and Tomes, B. (2008), p Op. Cit. Orey, M. (2008, January 3). 26 Hinshaw, D. (2008, March 30). Columbia s First Ring Suburbs. The State. A1. 27 Taylor, C. (2008, March 23). State toughening up measure against blight. Retrieved March 23, 2008 from 7