By Peter Ricci
Vacant housing remains a problem for the U.S. real estate market, and until it is fully addressed, the housing market will never achieve a full recovery – at least that was the perspective of Elizabeth Duke, the ever soft spoken governor of the Federal Reserve board, during a recent speech in New York.
The Vacant Housing Problem
The problem of vacant housing, Duke said, come down to safety and property values:
- Though vacant housing inventory is down by quite a bit – recent projections put the vacant housing stock at 1.6 million units, down from a peak of two million in 2010 – many of those homes are off the market, and as such, are only falling into further disrepair as more time drags on.
- As the condition of vacant homes worsen, Duke said, they have “substantial negative impacts” on the surrounding community, as the property values of adjacent homes fall and the vacant lots attract crime and shady figures. Studies by the Fed, she said, have shown that vacant homes can lower the value of nearby properties by two and a half times that of a foreclosed home.
The Solution(s) to Widespread Vacant Housing
In order to craft solutions to the vacant housing problem, Duke said we first need to segment the vacant housing inventory into three categories: one, the vacant homes in affluent areas affected by the overbuilding of the housing boom; two, “low demand” neighborhoods with aging housing stock and job loss; and three, traditional suburban areas with low housing density.
The solutions, then, need to be specific to each market. For instance, in the first category, for instance, where overbuilding created a surplus of homes, housing investors have proved quite active in buying up the vacant properties and marketing them as rentals, though opportunities must be preserved for local homebuyers to also purchase the vacant homes; and for the second category, the properties can either be marketed to private investors, or demolished (and the land can be repurposed).
In the end, Duke said, the cost of doing nothing is far greater.
“Doubtless there will be costs associated with solving these problems, but it is important to also consider the costs of doing nothing,” she said. “Ultimately, a policy of neglect will be just as – or even more – costly than finding and implementing constructive solutions to the vacancy issue.”