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Anti Blight Ordinances and Local Housing Markets

Anti Blight Ordinances and Local Housing Markets

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Published by Foreclosure Fraud
4closureFraud.org
4closureFraud.org

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Categories:Types, Research, Law
Published by: Foreclosure Fraud on Jul 12, 2012
Copyright:Attribution Non-commercial

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07/12/2012

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The research and conclusions expressed in this paper are those of the author(s) and do not necessarily reflect theviews of Pew, its management or its Board.
What Impact do Anti-vacancy and Anti-blight OrdinancesHave on Local Housing Markets?
byThomas J. Fitzpatrick IV
1
 Lisa Nelson
2
 Francisca Richter
3
 Stephan Whitaker
4
 
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Economist, Community Development, Federal Reserve Bank of Cleveland. The views and opinions expressed are
the authors’ alone, and do not necessarily reflect the views and opinions of the Federal Reserve Bank of Cleveland,
the Board of Governors, or other Banks in the Federal Reserve System. Our thanks to the Pew Center on the Statesfor their feedback and to Moira Kearney-Marks for her research assistance.
2
Senior Policy Analyst, Community Development, Federal Reserve Bank of Cleveland
3
Research Economist, Community Development, Federal Reserve Bank of Cleveland
4
Research Economist, Research Department, Federal Reserve Bank of Cleveland
 
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The research and conclusions expressed in this paper are those of the author(s) and do not necessarily reflect theviews of Pew, its management or its Board.
Executive SummaryForeclosure has been a national issue since the current housing crisis began, and has received a
lot of attention from federal policy makers. Foreclosure’s effects are felt primarily at the local level, and
include lower surrounding property values, increased crime, and erosion of the municipal property taxbase. But in weak housing markets, like those found in the core and inner-ring suburbs of olderindustrial cities, foreclosure causes a different set of problems. Foreclosure in these marketsaccelerates the long-term vacancy, and eventual abandonment, of property. Federal housing policy inthe wake of the crisis has not been as responsive to these problems, leaving states and localities to crafttheir own policy interventions.The primary federal responses to the housing crisis have been to implement and refine theHome Affordable Modification Program (HAMP) and the Neighborhood Stabilization Program (NSP).HAMP focuses on foreclosure prevention, which some features that incent foreclosure alternativeswhen modification is not feasible. Research suggests that foreclosure prevention is likely the optimalpolicy intervention in normal and strong housing markets. In weaker housing markets, more emphasis isneeded on interventions to prevent and remove blight created by vacancy and abandonment. Statesand localities have stepped up to fill this role in a number of ways, but few of these responses have beenthoroughly evaluated.This paper analyzes the impact local anti-vacancy and anti-blight ordinances have on housingmarkets in Cuyahoga County, Ohio (home to Cleveland). These ordinances, consisting of point of saleinspections, escrow requirements, and vacant property registrations, have become immensely popularover the past 5 years. In order to evaluate the impact these ordinances have on local housing markets,we compare home sales in communities with ordinances before 2004 to home sales in communitieswithout ordinances through 2009. To isolate the impact of the ordinances, we use a probabilisticmatching to link information about borrower and loan characteristics (found in HMDA and local recorderdata) to property characteristics (found in local Fiscal Officer data), and control for these characteristics.Cash transactions are also analyzed.We examined the impact of these ordinances on two sets of decision makers: loan underwritersand property purchasers. We find that local ordinances did not do much to discourage the making of loans that would eventually end up in foreclosure, though adding an escrow requirement to a point of sale ordinance slightly decreases the probability that a loan that eventually enters foreclosure would bemade. The main impact of local ordinances is in how properties are cared for. Given than municipalitieswith point of sale requirements have worse housing markets than those without them, the addition of arequirement to escrow sufficient funds to repair the property at the point of sale will improve the
 
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The research and conclusions expressed in this paper are those of the author(s) and do not necessarily reflect theviews of Pew, its management or its Board.
condition of their housing stock relative to what it would have otherwise been. The selection of buyerswho are willing and able to maintain the properties is reflected in the lower incidence of post-sale taxdelinquency in municipalities with escrow requirements, relative to those with point-of-sale inspectionsalone. Thus, policymakers considering the enactment of local ordinances should understand that theywill likely have a marginal impact, and should include an escrow requirement if they seek to preserve orimprove the condition of their housing stock.

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