The Foreclosure Crisis: Preservation Concerns and Responses

  

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When the Obama administration announced its initial program to aid homeowners and communities impacted by the foreclosure crisis, it chose a setting in a Phoenix suburb surrounded by sprawling overdevelopment and littered with “Foreclosure” signs. This setting reinforces the common perception that the foreclosure crisis is a problem for all of us but its worst effects are being felt by growth centers in the Sun Belt states. Since it is true that the percentage of foreclosures is highest in states such as Nevada and Florida, where decades of population growth created speculative new development that proved unsustainable, why should preservationists care? In fact, should we not gloat a bit about the comeuppance experienced after unchecked sprawl?

Neighborhoods Lost

We must care about foreclosures because there is another side to the story. The real and lasting impact of the foreclosure crisis will be felt in industrial cities and towns of the Midwest and Northeast. In cities such as Detroit and Cleveland and in towns like Saginaw, Mich., and Youngstown, Ohio, 50 years of population decline since their peak around 1960 created a “weak market.”1 Now an even weaker economy and irresponsible lending practices have combined to endanger the very existence of older and historic neighborhoods. It could not have happened at a worse time. Just when an urban renaissance was beginning, with the help of housing advocates and preservationists, the foreclosure crisis sent vulnerable neighborhoods spinning back into decline.

One Example

Cleveland’s Slavic Village, for example, housed in the early 20th century an ethnic labor force for the city’s steel mills just below in the Cuyahoga River Valley. But the loss of the mills to foreign competition caused a decline in population followed by diminishing property values and growing social problems. Under the guidance of a strong local community development corporation and with good support from the City, there was new hope for Slavic Village to become a neighborhood of choice for urban working-class families. But it was also one of the neighborhoods in Cleveland targeted by predatory lenders, who first tested their high-risk loans there in the late 1990s before rolling them out nationwide. As a result, the bubble burst first in Slavic Village and other vulnerable but recovering Cleveland neighborhoods. Today there are more than 16,000 listed foreclosures and even more abandoned buildings in Cuyahoga County, 5,000 foreclosures in progress in the city of Cleveland, and hundreds underway in Slavic Village. With growing unemployment and resounding waves of adjustable rate mortgages resetting each month, the crisis will go on for years.2

A Familiar Pattern of Decline

The effects of decline that predated the foreclosure crisis have returned with a vengeance. Once foreclosure is initiated, it leads to both voluntary and involuntary abandonment of homes. Bankers, who work largely through local mortgage servicers with no direct stake in the property or the community, first think they can resell the property with only a “haircut,” the euphemism for taking a modest loss. Finding the market to be weak, they then decide to hold the property until salability improves. When they realize there is no market recovery in sight, they abandon the property and often halt foreclosure proceedings midstream to save legal costs, immensely complicating ownership titles. Not being property managers, they have no interest in leasing the property to keep it occupied.

Once vacant, the property is soon identified by looters who claim every item of value: copper piping and wire, furnaces and fixtures, aluminum windows and doors, and even aluminum siding. Distinctive architectural features such as porch columns, fireplace mantels, and newels and rails are also stripped for their resale value. The pace of this phenomenon varies with the local economy—it takes hours in Detroit and a few weeks in Minneapolis—but its effects quickly reinforce the diminishing desirability of the neighborhood, and thus any prospect for market recovery. No one wants to live beside a foreclosed home, let alone invest in a neighborhood pocked with abandoned and rotting shells. A 2005 study in Chicago showed that each foreclosed home in a low- to moderate-income neighborhood can lower the market value of others within the block by 1.44 to 1.80 percent.3

Death Spiral

The compound effect in neighborhoods with many foreclosures is cancerous and even more deadly. Abandoned homes soon attract squatters who occupy the properties for illicit activities, often warming themselves by open fires which are frequently destructive. More commonly, neighbors demand that the city demolish the property to drive out the criminal element and erase the negative image. But of course, the vacant landscape is soon its own negative image, and the former neighborhood turns into an urban wasteland. In the end, a once-vital neighborhood—often one that was beginning to see an improving future only last year—is lost.

Overwhelmed

In such conditions, conventional neighborhood stabilization strategies do not work. Only recently, community development organizations could acquire vacant properties as they became available, and within a year or so rehabilitate them for resale to recoup most, if not all, of their investment (making up the losses with fundraising and a host of government program dollars). But the sheer volume and pace of the fore­closure crisis has overwhelmed their capacity. Now they must struggle to clear titles with uncertain ownerships to acquire abandoned property for rehabilitation. At the same time the market for rehabilitated property plummets to zero and credit markets make it impossible to finance resale even if they could find a buyer. Once-viable properties deteriorate until they end up claimed by the county for unpaid property taxes.

Landbanks

Unable to sell an abandoned property to anyone for any price, cities and counties are resorting to a concept of “landbanking,” creating an authority to acquire and hold the property until it is marketable.4 The hope is that once the crisis passes and some market viability returns, they will be able to rehabilitate homes for resale, and assemble vacant parcels into larger packages for redevelopment. Expect more redevelopment than rehabilitation. Once abandoned and left to the elements for only a season or two, such property becomes significantly more expensive to rehabilitate. Stripped of their operating systems and suffering from structural problems stemming from exposure and arson, they are quickly tagged irredeemable even if they exhibit bits of architectural charm.

Municipalities Struggling

It is not fair to blame local governments who then make the case for demolition as the only option. Municipalities are also struggling to tend to newly abandoned neighborhoods. Estimates have pegged the municipal cost of abandonment at about $8,000 to $10,000 per home, including boarding and security (usually unsuccessful in the long term), police and fire calls to the property, and eventually demolition.5 And all those new costs are accruing to a local budget damaged by a deep recession and a declining tax base.

Rightsizing

Increasingly, cities affected by weak markets and now accelerated decline driven by foreclosures are turning to a concept that came out of Northeast Ohio known by various names but best captured by the term “rightsizing.” The concept accepts that once-mighty industrial cities will never recover their vitality to the degree necessary to support the infrastructure built to accommodate their industrial heyday, and so they must plan to shrink. It is a hard pill to swallow. The American psyche is so geared toward growth, Growth, GROWTH, that to be acknowledging the natural cycle of growth and decline all cities experience is difficult. An increasing number of brave community leaders are beginning to plan to downscale their city’s urban footprint and to consolidate and prioritize city services into a manageable envelope sized to their current and likely long-term population.6

Planning Smaller

Aided by schools of planning that are beginning to take up the concept, many cities are developing strategies for shrinkage. Since sudden wholesale abandonment of neighborhoods is politically difficult, even if they are largely vacant, strategists intend to slowly downsize through attrition, by declaring their intention to shrink—much as they planned once to grow—and letting the market take it from there. The leader in this strategy is Youngstown, Ohio. There a young realist mayor brought the community together in a series of soul-searching sessions last year to envision the city’s future, resulting in a mandate to plan for downsizing the city. Plans are moving slowly, but the foreclosure crisis—which aggravated a pattern of property abandonment already well underway 7—may accelerate the pace. Youngstown is not alone. Kent State University recently published a study showing how the city of Cleveland could “green” itself by turning abandoned neighborhoods into parks, urban agriculture, and reforestation. Similar experiments are underway in Detroit and have been proposed for Buffalo and other cities.8

Neighborhood Stabilization Program

In July 2008, even before the foreclosure crisis hit, Congress passed the Housing and Economic Recovery Act of 2008 in response to calls from weak-market cities for help dealing with vacant and abandoned buildings. It appropriated $3.9 billion to help struggling cities facing foreclosure issues and established the Neighborhood Stabilization Program (NSP). More recently, the stimulus package, known as the American Recovery and Reinvestment Act of 2009, appropriated another $2 billion for NSP.

A Drop in the Bucket

In reality these funds are only a fraction of what will be necessary to have a real impact. Cleveland officials estimate the funding will allow them to acquire and demolish about 150 houses, or about 1 percent of the vacant and abandoned homes in Cuyahoga County.9 Since these activities will be subject to Section 106 review, the cities have a responsibility to evaluate the historic merit of each property targeted for demolition. But since most of the surveys on which such reviews will be conducted are from the 1970s-80s, and many were superficial, there will be little time or money to reconsider the potential of the historic significance of early 20th-century working-class industrial housing, already a dwindling housing type. Of even greater concern is the pattern of demolitions this money will unleash. Once the demo machine is well lubricated and with few prospects for market viability in sight, clearance of whole neighborhoods may in the next decade become a new form of “urban renewal.”

Brace Yourself

So what are the potential consequences of this bad-news story in many industrial cities?

  • First, expect it to spread to inner-ring suburbs. Shaker Heights, the delightful and long-admired early-20th-century planned community just east of Cleveland, now has about 1,500 vacant homes. Expect the foreclosures to waft out from the core in many cities.
  • Second, it is already generating loud calls for strong government action at the state and federal levels. Expect federal, and when feasible state, funding to pour into weak-market cities in coming years. Help is surely needed, but we should anticipate a reactionary approach that fails to grasp the subtle nature of community revitalization. Government tends to see urban fixes in wholesale terms of renewal, and the legal language in use is still based on that vague term “blight.” Advocacy with elected officials will be needed to combat or improve these new funding streams. 
  • Third, expect the loss of select urban neighborhoods. When significant numbers of foreclosed and abandoned properties are concentrated in pockets of poverty, we must be realistic and recognize that it will be difficult—very difficult indeed—to salvage those neighborhoods. And when it happens in extremely weak market cities with toppling economies, it could involve not just a neighborhood but whole swaths of the city. The best we may expect is to save small pockets or landmark properties that might help anchor future redevelopment (or even agriculture) with some trace of history. 
  • Fourth, anticipate the complete collapse of the viability of many remaining urban commercial areas and institutional complexes. Be prepared to see urban commercial nodes disappear, and churches and schools closed, abandoned, and demolished.
  • Fifth, expect more and more weak-market cities to opt for rightsizing as their only option. Precisely how that concept is implemented will be a major challenge for preservationists in the next decade or two.

A Preservation Response

What can we do to mitigate this trend and minimize the negative impacts? We must be realistic but we need not sit on our hands. Again, when foreclosure and even abandonment happens to an isolated property here and there, the prospect for resale and rehabilitation is good, although it will likely take more effort and more money than it would have just few short months ago. When lots of foreclosures overwhelm a weak-market neighborhood, there is little choice but just to document what we can before it is gone—a traditional, but unsatisfying, mitigation. We need to focus on neighborhoods on the bubble between those two extremes. Mapping and careful tracking of market trends will quickly identify those neighborhoods where a concerted effort to tip the plane back toward level is worthwhile.10

Support Neighborhood Resiliency

While there is a tendency to want to directly confront the problem of fore­closures, recognize that it is a huge and complex issue, now frustrating some brilliant and well-seasoned experts. Consider leaving that to others. When a neighborhood is in the balance, it is often its self image and its public image that is the fulcrum of its future. Michael Schubert, a long-time veteran of community revitalization efforts, authored a recent article citing four interwoven principles of neighborhood resiliency that focus not on fighting the foreclosure demon, but on reassuring and empowering the remaining homeowners:11

1. Establish a sense of control. In some neighborhoods, neighbors clean the porches and mow the grass of vacant property to send signals that they care about the neighborhood to their peers, the public, elected officials, and potential developers and buyers. Others band together to share news, stem rumors, and solve other problems. Good news has value. Preservationists should assist such activities and communications in threatened neighborhoods.

2. Market to build demand. Marketing is more than advertising and sales. It depends on a brand identity, one that can be based on the unique architectural character of the area, or its linkage to historic personages and events. Every neighborhood has a history—a story of its origins, evolution, institutions, and its heyday. Document and trumpet that history to build self-esteem among remaining owners and create a positive identity to attract potential buyers, concurrently raising awareness of the value of that neighborhood in the broader community.

3. Promote a positive neighborhood image. Beyond the visible elements of a neighborhood’s brand are the people who make up the spirit of a place. We all want to be a part of something positive and are attracted to those committed to a cause. Preservationists can develop and distribute profiles of people who live in the neighborhood, stressing their tenure and reinforcing both the desirability and stability of being there through these people’s personal commitment.

4. Strengthen social connections within the neighborhood. Fun can be an antidote to frustration. Preservationists can help organize block parties and social events, host regular lectures focused on the history of the neighborhood, and promote other creative activities that will bring people together.

Some Other Positive Actions

Having demonstrated we care through positive intervention in select neighborhoods hanging in the balance, there are other things we can also do:

  • Recognize that we cannot do it alone. Seek out partners in the housing and community development world who share many of our values today, and support their efforts at foreclosure prevention. 
  • Join their efforts to work in the marginal communities by saving landmarks and community anchors, as well as pockets of more interesting and significant housing. 
  • Survey threatened neighborhoods to identify properties worthy of preservation. Windshield survey still has value; the paperwork can catch up later. The preservation voice needs to be timely when significant properties could be lost.
  • Become an active player and rehabilitate a key property in a neighborhood where that one action just might demonstrate the potential of other properties. It’s risky work, so be selective, careful, and collaborative.
  • Get at the planning table to espouse preservation values at whatever level seems viable in each specific context. Help city government see the value in older housing.
  • Help fight off the second wave of “flippers” now moving in to pick up foreclosed properties for token sums and who could become the new slumlords and speculators. The last thing needed is a second wave of this problem.
  • Join the chorus of urban advocates arguing for lending reform, expedited fore­closure, fiscal and civic accountability, and abandonment ordinances and fees.
  • When “rightsizing” is discussed, join the conversation with offers to assist in identifying the most significant and worthwhile neighborhoods for preservation.

Long-Term Commitment

While it may seem late to enter the fray now in what looks like a fast-moving wave of complex and negative events, the long-term impact of the foreclosure crisis is yet to be determined. We can make a difference if we join with others and use our particular tools and skills, focusing on the most historic and valued neighborhoods in the balance. Statistics suggest that the wave of foreclosures is only about half spent, though its full magnitude is dependent on the secondary consequences of job loss in the greater recession we are now experiencing. And while it would be nice to think this firestorm will blow over us if we just hunker down, its intensity could suck all the energy out of urban revitalization gains in recent years. Thus, we must engage in the issue for the long term with our usual tenacity and passion.

Notes:

1 Restoring Prosperity: The State Role in Revitalizing America’s Older Industrial Cities, The Brookings Institution Metropolitan Policy Program, 2007.
2 “All Boarded Up,” New York Times Magazine, March 8, 2009.
3 Immergluck, Dan, and Geoff Smith. There Goes the Neighborhood: The Effect of Single-Family Mortgage Foreclosures on Property Values, Woodstock Institute, June 2005.
4 Frank S. Alexander, Land Banking as Metropolitan Policy, Brookings Institution Metropolitan Policy Program, 2008.
5 Conversations with elected officials in the City of Cleveland, January 2009. See also Vacant Properties: the True Cost to Communities, National Vacant Properties Campaign, 2005.
6 Timothy Aeppel, “As Its Population Declines Youngstown Thinks Small,” Wall Street Journal, May 3, 2007.
7 The city of Youngstown has lost 60 percent of its population over the last 50 years, declining from near 170,000 to about 70,000 today. 8 See www.gcbl.org/blog/marc-lefkowitz/a-bold-vision-for-greening-cleveland re: Cleveland, and www.modeldmedia.com/developmentnews/greening36.aspx regarding Detroit. See also Joseph Schilling, Buffalo as the Nation’s First Living Laboratory for Reclaiming Vacant Properties, Virginia Tech University Metropolitan Institute, 2008.
9 Conversation with James Rokakis, Cuyahoga County treasurer January 2009.
10 Properties in various state of foreclosure can be tracked by community at www.realtytrac.com, a private company. See also www.HUD.gov/NSP for a rating system of foreclosure and vacancy tracking established by the federal government.
11 Michael F. Schubert, “Foreclosure and Neighborhood Resiliency, Community Development Strategies,” unpublished paper referenced with permission.