Cook’s ordinance is very similar to an ordinance the Chicago City Council adopted in November 2011. That ordinance is now the target of a lawsuit, filed by the Federal Housing Finance Agency (FHFA), claiming Chicago’s rules encroach on FHFA’s role as the sole regulator and supervisor of Fannie Mae and Freddie Mac, which own about 258,000 mortgages within the city. FHFA is seeking an exemption for those mortgages; Chicago has vowed to take it to the courts.
It remains to be seen whether Cook’s ordinance, led by Commissioner Bridget Gainer (D-Chicago), will draw the same reaction from FHFA; to be sure, both ordinances have been and will continue to be the subject of much attention over the coming weeks and months. Yet these vacant building ordinances – rightly designed to reduce the property management burden being absorbed by municipalities – are just one of the many ways municipalities, agencies, and public policy advocates are addressing vacant properties, a regionally significant problem that has touched nearly every community in northeastern Illinois and northwestern Indiana.
Just how significant?
In Cook County alone, nearly one in 10 residential buildings are vacant. (Notably, 75 percent of mortgages in Cook County are by Fannie Mae, Freddie Mac, and Federal Home Loan Banks, all regulated by FHFA.)
A 2011 Woodstock Institute report found that, in the City of Chicago alone, nearly 1,900 homes in foreclosure were likely abandoned by their servicers. These homes cost the City an estimated $36 million.
A Harvard University study reported that local governments spend between $5,000 and $34,000 to maintain and secure a single vacant building.
Properties are or become vacant for a host of reasons: Some are still under construction, some are in probate after an owner’s death, others are in the midst of an ownership dispute. However, in the wake of the housing bust (and subsequent lending crisis) foreclosures have been – and will continue to be – a driving factor. Nationwide, properties just beginning foreclosure proceedings currently outnumber foreclosed property sales by two to one, and late-stage delinquencies still in the pipeline number close to 2 million, according to a new report from Lender Processing Services.
It’s also important to note that not all vacant properties become a nuisance. Some owners continue to care for their buildings as they attempt to sell or rent them; other vacant properties are undergoing rehabs, in some cases with funding from the Neighborhood Stabilization Program, the federal foreclosure recovery program.
What’s more, much is being done to stem the tide of vacant properties resulting from foreclosures. In major news, at the start of the new year, the Obama administration reported that, in conjunction with federal regulators and led by FHFA, it is very close to announcing a pilot program to sell government-owned foreclosures in bulk to investors as rentals. A white paper on housing released by the Federal Reserve Bank identified such a “government-facilitated REO-to-rental program” as one promising solution to a host of housing problems. The concept is that the banks (or in this case FHFA) would sell batches of their foreclosed inventory to investors, who would manage the properties as rentals. The hope is that such a program would quickly bring a significant number of homes back to productive use, helping to stabilize home prices, curb the number of vacant properties, and increase the rental supply (thus bringing down rental prices) at a time when demand for rentals is high. That said, the plan still has some thorny details to work out; in particular related to vacant properties, while investors may be in the wings ready to scoop up these REOs, it is unclear whether they have the experience to manage these properties well.
What is clear is that the number of vacant properties is projected to increase before it decreases, as many properties’ foreclosure processing were delayed last year, creating a pending wave this year. Unfortunately, the sheer number of vacant properties means there isn’t nearly enough government funding to address the bad apples in the bunch, and this problem has put a growing strain on municipal finances and threatens the appeal and safety of neighborhoods. In some communities, a few vacant properties with overgrown lawns and accumulated trash cause problems for neighbors. In others, troubled buildings attract scavengers, squatters, and gangs, leading to an increase in crime and a decrease in property values. And in some communities with many foreclosed properties, the crisis threatens to doom the entire neighborhood to a cycle of disinvestment and decay. A cluster of vacant properties can destabilize a block. A cluster of troubled blocks can destabilize a neighborhood.
The good news is, much is being done to address this issue. From the creation of new land banks and development funds to foreclosure prevention initiatives and “how to” toolkits for municipalities working to address vacant properties, this blog series will explore the ways communities, agencies, and policy advocates are tackling this pressing issue. Two particular initiatives that MPC and MMC support, the Regional Home Ownership Preservation Initiative (RHOPI) and the Preservation Compact , have aligned the work of dozens of organizations to promote the sustainability and stability, respectively, of homeownership and multifamily rental housing. Both RHOPI and Preservation Compact partners are poised to support the effective implementation of Cook County’s new ordinance, through on-the-ground technical assistance and broader information dissemination.
Over the next few weeks, representatives of these and other regional partnerships will contribute their plans and perspectives, and we invite you to follow the series to learn what’s being done in this region to stabilize housing and our communities. As we build awareness about the impact the stagnant housing market is having on economic recovery, interest in and momentum to embrace existing and develop new solutions to the vexing vacant properties issue also will grow.
Allison Milld is Director of Housing Initiatives for the Metropolitan Mayors Caucus. Dominic Tocci is Project Manager of Metropolitan Planning Council’s Interjurisdictional Collaboration initiative.
Throughout January and February, Woodstock Institute is participating in a series on vacant properties in metropolitan Chicago hosted by the Metropolitan Planning Council. In the coming weeks, the blog will feature guests posts from elected and appointed officials, policy advocates, finance experts, and others about the many ways we are all working together to get a handle on this growing regional and national challenge.