Derided Housing Fix Catches On

(EMac will be out in the coming week.)

It’s an idea that’s been vilified as bizarre, crackpot, sheer lunacy.

 

But it’s an idea that’s picking up speed around the country, as an increasing number of cities and towns are finding that it helps lower and middle class taxpayers.

 

It involves local governments knocking down condemned, abandoned foreclosed homes and taking back the land to use for parks, playgrounds, schools, gardens, whatever the local communities want.

 

Local residents want the bulldozing. Indeed, they’re demanding it, because abandoned houses geometrically create disastrous economic consequences, problems that have a concussive impact on the lower to middle class in whose neighborhoods most of these foreclosed homes sit.

 

Foreclosed homes lower surrounding property values, leading to more vacancies, which result in less tax revenues. And the drop in property values lead to fewer buyers, which lead to more vacancies, which leads to  a main engine falling off the economy, consumer spending, ad infinitum, all fueling a rapidly gyrating vicious cycle that gets wider with Euclidean inexorability.  

 

But giving new meaning to the term artificial intelligence, anonymous online bloggers have attacked this policy--proof positive we need a bailout to pay for fumigating this Land of the Internet Wing Nuts. The columns, of course, are anonymous and carry no byline, because who wants to be exposed for being about as sharp as a bowling ball. 

 

As cities struggle with potential bankruptcy in this recession, leading to an inability to even pay policemen and firemen who deal with abandoned homes, “shrinkage” and “land bank” approaches are rapidly being adopted across the country. 

 

With the help of Fox News analyst James Farrell, here's what we found:

 

Foreclosures Grow

 

As of March 31, about 4 mn homes have sat empty for three months, up slightly over 2008's results. That's about 3% of all U.S. homes. 

 

Hardest hit are the states sitting squarely in the Rust Belt, most of them filled with minority, poor, ex-urban neighborhoods now abandoned and empty, reports indicate. Places smacked hard during the economic crisis, cities such as Flint, Mich., Cleveland, Ohio, and Buffalo, N.Y.

 

The number of abandoned homes scattered throughout the nation's 65,000 neighborhoods concerns federal officials because of the potential to prevent the economy from recovering, reports note.

 

An estimated 70% of the western part of Columbus, Ohio now sits vacant, making it one of the emptiest in the nation, local reports show.  

 

There are as many as 10,000 abandoned homes in Buffalo, NY (where I went to college), local media reports. Buffalo's current population has now dropped to under 300,000--half what it was during the 1950s.

 

"I'd move in a heartbeat if I had somewhere to go right now," Cindy Olejniczak of Buffalo, told a local reporter as she raked trash from the lawn of a boarded-up house to keep it from blowing into her yard.

 

About every third home in her neighborhood is vacant, local reports show. Not even pizzerias will deliver to the area now. "It's almost like you wish they would just level the whole neighborhood and start rebuilding again from scratch," Olejniczak said.

 

Cities Now Bulldozing Abandoned Homes

 

Last summer, Congress appropriated $3.9 bn in emergency funds for cities to acquire and rehab foreclosed properties.  

 

And President Obama's stimulus allocated another $2 bn, after Cleveland and other cities lobbied Congress to use stabilization funds to tear down houses.

 

In fact, Cleveland said it planned to use more than half of its $25.5 mn stabilization funds to raze 1,700 houses, as the city has been struggling with at least 10,000 abandoned homes, 1 out of every 13 in the city, reports indicate.

 

Besides Cleveland, Minneapolis, Youngstown, Detroit and Cincinnati also have plans to use at least one-third of their neighborhood-stabilization funds for demolition, reports indicate.

 

List of cities now bulldozing and rehabbing:

 

Flint, MI

Detroit, MI

Saginaw, MI

Cincinnati, OH

Columbus, OH

Youngstown, OH

Buffalo, NY

Indianapolis, IN

Victorville, CA

Little Rock, AK

Des Moines, IA

Minneapolis, MN

Phoenix, AZ 

 

Housing Courts Now "Rat Courts"

 

Up until the bulldozing and rehabbing, local homeowners, many of them solidly in the lower to middle class, were at the mercy of unaccountable builders, lenders and real estate developers, who have lined local politicians' pockets with donations in exchange for zoning easements to overdevelop.

 

Many of the neighborhoods were also wrecked by cold-calling mortgage brokers who offered refinancing deals that would let homeowners use the equity in their houses to pay off other debts.

 

Now cities like Detroit, Cleveland, and Buffalo have to deal with criminal problems from foreclosed, abandoned homes. They have lured arsonists who set fires for no reason, have increased petty crime, and simply increase squalor.  

 

The problem has gotten so bad, Cleveland locals now call their municipal housing courts "rat courts."

 

A Conclusion is Where the Mind Comes to Rest

 

But some precious armchair, anonymous critics in the blogosphere who have never cracked an economics book—and likely have never lived in distressed neighborhoods (I have, and worked on rehabilitating one on Staten Island)—would rather cavalierly attack a policy backed by the President, the Fed Chairman, Congress, and a growing number of economists and local taxpayers, a policy that I wrote about last fall, a policy that helps the wellbeing and safety of poor and lower middle class families, a policy that protects children. 

Again, because squatters, drug addicts, petty thieves, even arsonists often set upon these condemned homes (the conclusion quote above is from author Michael Lewis).

 

Call them potential crack houses, call them what you want. Rehabilitated land used to build schools or other property will toss off property taxes. Condemned houses still standing drive down home prices and thus resulting property taxes.

 

Plus, it's supply and demand issues found in economics 101. The hog-wild housing sector went berserk, unfettered, unchecked, pumping out matchstick homes, causing the number of unsold homes, an inventory overhang, to skyrocket to 11 months. Never mind the static pool of buyers for them. 

 

Housing supply is now at about nine months, still about twice its historic level of roughly five months, a level we last saw in March 2006 and one that won't return until at least 2011, Barclays economist Michelle Meyer estimates.

 

Prices are still too high versus rent and income, and now seem on track for a more than 40% peak-to-trough decline. One in four homes are now underwater on their mortgages, causing foreclosures to continue to soar, says Zillow.com, a real estate research firm. It's why Pulte Homes and Centex recently announced heavier losses than expected. 

 

The housing sector also is notorious for using off balance sheet joint ventures to load up on debt to overdevelop, debt that may have to come sluicing back onto the balance sheets starting later this year.

 

Other Land Uses?

 

Fox's Jim Farrell offers up this intriguing idea: Use the empty space to install solar panels for energy use, so long as the sun is available in those areas.

 

This would solve the problems of Senator Dianne Feinstein opposing solar panels on deserts (yes, she is seriously opposed to putting solar panels in California deserts, Farrell notes).  

 

With the largest foreclosure areas in California, Arizona, Nevada, Florida, those states "have some nice sunny climates to put the solar panels in where the deadbeats used to own homes," Farrell says.

 

Arizona, California, Florida and Nevada account for almost 280,000 of the 1.1 mn foreclosed properties taken over by banks in the first four months of 2009. These nice sunny locales are perfect for this solar plan.

 

What would this cost? According to the Department of Energy, the average cost for a solar thermal collector in 2007 was $3.95 per square foot. With 412,390 acres at stake in foreclosed land, loading up this property with solar panels would involve almost 18 bn square feet of solar collectors with an estimated price tag of $71 bn.

 

How Much Energy Will This Produce? 

 

According to the Department of Energy's Energy Information Administration, in 2007 high-temperature (parabolic dish/trough) solar thermal collectors could produce 1,000 Btu/per square foot each day.  

So that means the 18 bn square feet of solar collectors would produce 6.57 quadrillion BTUs per year, Fox's Farrell estimates.

 

This would account for almost 6% of all energy used by our country in 2007 (doubling our use of renewable fuels for energy consumption). It would also be equivalent to approximately one million barrels of oil, reducing our dependence on foreign sources, Farrell notes.