Headlines tout the comeback of the nation’s housing market. Good news, to be sure. But it will be even better when that comeback reaches all of Ohio’s neighborhoods.
Northwest Ohio, like most other regions in the state, was struggling with distressed housing even before the foreclosure crisis began. Losing population and building more new housing than we have households have created high levels of vacancy and abandonment, mostly concentrated in urban cores and inner-ring suburbs.
Between 1980 and 2010, Lucas County gained about 17,600 housing units, but only 8,000 new households. Today, it has 20,000 more housing units than families to occupy them.
For the past six years, the Federal Reserve Bank of Cleveland has worked to gain a better understanding of Ohio’s housing markets. We have learned that our markets differ dramatically from the national averages we see in headlines, and that there is no silver-bullet solution.
We have also concluded that consumers, communities, and lenders are all losing ground in four situations that can be addressed by modifying state law:
● Let’s reduce the time it takes to foreclose on abandoned homes. The judicial process ensures that a homeowner’s interest is protected when a lender forecloses. But in the 25 percent of cases where homeowners have left before foreclosure starts, Ohio’s judicial process guarantees those homes will sit vacant for a year or two.
Long-term vacancy harms neighborhoods by lowering property values, attracting crime, and creating safety hazards. It harms lenders by allowing their collateral to depreciate; when lenders walk away from depreciated collateral, it harms homeowners who are left on the hook for code violations and taxes. Fast-tracking vacant and abandoned property through foreclosure can benefit everyone.
● Let’s reconsider minimum bids at foreclosure auctions. After lenders complete a foreclosure in court, they can ask the county sheriff to auction off the property. By law, the property is given a minimum bid of two-thirds of the value of the home, as determined by the sheriff’s office.
That sounds fine in theory, but does not appear to work well in practice. Most buyers at foreclosure auctions are the same lenders who eventually sell the properties to end users at prices that are nowhere near the minimum bids.
In the meantime, these properties sit vacant, deteriorating in quality and hurting neighborhoods, lenders, and the local government’s tax base. Rethinking the minimum bid requirement could eliminate the extra vacancy spell.
● We need new tools to address harmful speculation on low-value properties. Speculators tend to purchase the worst properties, with no intention of improving them or paying property taxes. Instead, they often resell these properties to customers who don’t understand what they are buying.
Two features of Ohio law allow this business model to persist: There is no requirement that a corporation must be registered to do business in the state before a property can transfer to it. And there is no requirement that back taxes and code violations must be corrected before a property can be transferred. These two features severely hamper the efforts of cities and towns to hold harmful speculators accountable.
● Let’s expand access to modern land banks. Roughly half of Ohio’s counties are not fully equipped to fight vacancy and abandonment.
County land banks, including Lucas County’s, have been effective tools to address vacant and abandoned property. These nonprofits are required by law to remediate blight, have stable revenue streams, and wield the powers and flexibility to get dilapidated property back into productive use.
Originally, many thought this tool would be useful only in larger counties. But an increasing number of smaller counties recognize what useful tools county land banks are. It is hard to fix any problem without the right tools.
These four steps won’t solve all of our distressed-housing problems, but most progress worth making is incremental. There is no time like the present to get everyone to the table — communities, consumers, developers, lenders, and nonprofits — and give Ohio’s housing markets a boost.
Thomas Fitzpatrick is an economist at the Federal Reserve Bank of Cleveland. Mark Sniderman is an executive vice president and the bank’s chief policy officer. Their views do not necessarily represent those of the board of governors of the Federal Reserve System.