As Congress brings to the floor two crucial bills to address the crisis in U.S. housing markets, the Center for American Progress has found that the positive effect of the legislation will spread far beyond the estimated 500,000 at-risk borrowers to be helped through refinancing opportunities.
The Neighborhood Stabilization Act of 2008 authorizes $15 billion in a combination of grants and loans for housing stimulus activities. One critical benefit from providing funds for neighborhood stabilization—the process by which foreclosed and vacant houses that blight neighborhoods and lower neighbors’ property values are bought at a steep discount, rehabilitated, and sold affordably—is the economic activity generated from rehabilitating an estimated 145,000 properties nationwide.
The Center for American Progress has found that the bill would generate an added $13.3 billion in direct and indirect economic activity locally and nationally if $10.5 billion of that $15 billion is used to rehabilitate houses in neighborhoods with high rates of foreclosure. This added economic activity will be reflected locally in new construction jobs and nationally in new demand for building materials as those 145,000 vacant properties nationwide are bought and repaired.
In addition to creating jobs and infusing money into local economies as those wages are spent, the neighborhood stabilization money will also relieve pressure on municipal budgets, which rely heavily on property tax revenues for funding. Localities with high rates of foreclosures must reallocate funds to police, fire, and sanitation departments to address problems of trash, un-mowed lawns, graffiti, and vandalism. And increased crime and arson are also correlated with vacant and abandoned properties.
While municipalities will likely continue to incur some costs from vacant, bank-owned properties, purchasing these properties and restoring them to productive use rather than allowing them to languish will limit the degree of deterioration and minimize future expenditures. We estimate that municipalities will save $1.45 billion as a result of the program. We also estimate that the new residents will pay $281 million in property taxes that are currently not being collected, as banks often do not pay property taxes on properties they have foreclosed on because of expectations that a future buyer will clear the tax lien.
There are a number reasons to support the creation of neighborhood stabilization funds by Congress—see the full extent of our policy proposals on the Housing Page of our website—but helping communities help themselves recover from the rolling foreclosure crisis is central to any workable solution to the current U.S. housing crisis. Congress needs to fully fund neighborhood stabilization plans now included in legislation before the House and Senate.
Andrew Jakabovics is the Associate Director of the Economic Mobility Program at the Center for American Progress.