Vacant properties are stalling a true housing and economic recovery, but the solutions for addressing the issue are going to be largely dependent on where the distressed properties are located, according to Federal Reserve board governor Elizabeth Duke.
The number of vacant homes across the United States fell to 1.6 million units in the second quarter of 2012, which is well below the peak of 2 million units in 2010 and in the first half of 2011, Duke suggested while speaking at the Federal Reserve Bank of New York.
Many of the homes are not on the market at all, which Duke considers a serious problem since those residences often fall into deeper disrepair hurting all of the property values surrounding them.
“Vacant homes can be more than just an eye sore; they can have substantial negative impacts on the surrounding community, impacts that are felt most acutely by the neighbors and communities that must cope with the dangers and costs of vacant buildings,” Duke said.
Coming up with solutions to solve the problem is essential, but Duke believes it’s not a one-size fits all scenario.
For starters, a large percentage of the properties are homes built for higher income earners in areas like Phoenix during the real estate bubble. Another category is low-to-median income track homes built before 1960, while low-density tract housing is another category.
Duke believes investors will take care of a significant share of the vacant homes in higher-income areas, turning them into property rentals. Older communities will benefit from local government assistance.
“Doubtless there will be costs associated with solving these problems, but it is important to also consider the costs of doing nothing. For example, it costs local taxpayers to let vacant buildings decline, it costs money to tear them down, and it costs money to convert them to a better use,” Duke said.
In areas with a great deal of distressed homes and no signs of recovery, demolition may be the best option. Yet, it also comes at a great price, Duke said.
“[I]n Cuyahoga County, home to Cleveland, Ohio, about 80% of the approximately 100 properties per month that the land bank acquires need demolition, but at $10,000 in average costs per demolition, the Cuyahoga Land Bank is struggling to find the resources to fund this activity,” Duke said.
Click here to read the full speech.