Raising the Roof to Provide a Floor

The Newly Passed Housing Bill Provides $3.92 Billion to States and Localities to Stabilize Communities by Restoring Foreclosed Properties to Productive Use

There were an estimated 1.4 million properties in foreclosure in the United States at the end of the second quarter of 2008. The negative effects that existing foreclosures have on local house prices, including losses in accumulated middle-class wealth built up through home equity, are well-documented. The Housing and Economic Recovery Act of 2008, as enacted, provides almost $4 billion in grants to help states and localities stem the housing crisis by reducing downward pressure on local housing markets.

The housing bill, based on the Senate-passed plan, will bring millions of dollars and thousands of jobs to states:

Rather than having properties sitting vacant and attracting blight, local governments and their non-profit partners will leverage funds provided for the bulk purchase of these properties, rehabilitate them as needed, and offer them for sale or rent at affordable prices. The rehabilitation process, in addition to returning these homes to productive use, will create construction jobs in an otherwise moribund sector of the economy.

We estimate that, as those funds are leveraged, nearly 120,000 properties would be purchased and rehabilitated. This rehabilitation would generate an additional $8.6 billion in economic activity [1] and create in excess of 80,000 new jobs [2].

By restoring properties to productive use, vacant, foreclosed properties will no longer be a drain on local resources and force municipalities to cover rising costs ranging from trash removal, grass cutting, and boarding up vacant properties, to more serious problems such as vandalism, increased property and personal crime rates, and arson.

Nationally, localities will save nearly $1.2 billion in costs that they would have otherwise faced [3]. And these properties will pay in excess of $200 million in property taxes annually [4].

Endnotes

1. This is based on a multiplier effect of 1.27, applied to $75,000 in rehabilitation costs applied to each property and adjusted for state median house prices. It also assumes the grants will be leveraged at a 2:1 rate, with 85 percent of the funds used for purchase and rehabilitation.

2. Jobs are reported in one-year, full-time employment equivalents.

3. This is based on a conservative estimate of municipal costs of $10,000 per property.

4. Based on National Association of Home Builders’ reported median property taxes per state.