The home foreclosure crisis obviously affects individual homeowners and the entire credit market, but it is also a crisis for local governments.
The Pew Center on the States estimates that the nation’s lost property tax base due to foreclosures amounts to $356 billion so far; and projects Wisconsin’s lost tax base will total $1.9 billion by 2009. These figures do not include the amount of property tax revenue lost due to the lower tax base.
While a municipal or county government cannot change the momentum of the crashing housing market, it is in a local government’s best interest to prevent foreclosures from accumulating and further decimating the tax base. In addition, vacant homes can result in cost increases for a local government, due to the greater need for policing empty neighborhoods, fighting fires, and reinforcing the safety net for the newly displaced and homeless.
Some local governments have become pro-active. Chicago, for example, just passed a new vacant properties ordinance strengthening the requirements for owners of vacant properties to maintain the dwelling. To enforce the ordinance, building inspectors will conduct interior and exterior examinations every six months.
The City of Boston has a three-pronged attack:
1. Prevention—The city has long run a Home Center to provide counseling and education for first-time home buyers.
2. Intervention—A foreclosure prevention hotline gives advice to homeowners in default. In addition, the city has begun to reach out directly to anyone receiving a foreclosure petition to offer intervention counseling. In 2007, 192 foreclosures were prevented (which was three times more than the number of actual foreclosures in 2005).
3. Reclamation—The city has an intensive program aimed at stabilizing neighborhoods experiencing a rash of foreclosures with more intensive policing and street repairs and maintenance. The city also sponsors a trolley tour of potential home buyers, showing them all the foreclosed homes that are now listed with brokers, and offers classes and technical assistance to buyers of foreclosed properties.
But the most important thing Boston is doing is surveying all bank-owned homes on a monthly basis to document their condition, putting the most deteriorated vacant homes into receivership, and streamlining the process for turning these homes over to developers for rehab and resale. The city is also doing “bulk” purchasing of the entire portfolio of a lender, as they have found this to be an easier way of dealing with banks and other loan servicers, who are often not motivated or equipped to sell individual properties promptly.
Protecting property values is of vital importance for local governments during this time of tight budgets and reluctance to raise tax rates. Mayor Barrett recognizes this and his administration is working with the Metropolitan Milwaukee Fair Housing Council and the Legal Aid Society to counsel homeowners. In addition, Milwaukee's Common Council president, Willie Hines, has recently proposed a housing and foreclosure policy advisor position be created in the upcoming budget. But even more action may be needed. It is imperative for Milwaukee to remain vigilant and be ready to move similarly to Chicago or Boston to keep vacant properties from causing wholesale value decline.
(Read part I of this post here.)