Out of Control Policy Blog

Empty Neighborhoods Fill Rust Belt

The Associated Press has completed an analysis of neighborhoods and found the emptiest ones are not in the places hit hardest by the current financial crisis. Rather, they are in the urban areas hit hard by long-term economic decline--the Rust Belt.

While most attention has focused on the wave of foreclosures sweeping mostly middle-class, suburban Sunbelt neighborhoods from California to Florida, the nation's emptiest neighborhoods have remained concentrated in the same place for nearly a generation: the mostly minority, poor, urban neighborhoods of the American Rust Belt.

An analysis by The Associated Press, based on data collected by the U.S. Postal Service and the Housing and Urban Development Department, shows the emptiest neighborhoods are clustered in places hit hard during the recession of the 1980s — cities such as Flint, Mich.; Columbus, Ohio; Buffalo, N.Y.; and Indianapolis.

 Not only that, money won't solve the problems in these neighborhoods.

Federal lawmakers have designated nearly $6 billion over the past year for local governments to do just that — buy and either rehabilitate or demolish foreclosed and abandoned homes.

The AP's analysis, however, shows the money will only make a modest dent in the problem. As of March 31, there were about 4 million homes that have been empty for 90 days — a slight increase over last year's figures and about 3 percent of all U.S. homes.

The federal money will be distributed based on a complicated formula that considers local rates for foreclosures, high-cost mortgages and vacancies. There won't be enough money to completely fix places such as the neighborhood in western Columbus that is the nation's emptiest. A mostly vacant apartment complex with chained-off parking areas shares a drab stretch of asphalt with a strip club, payday lender and abandoned retail stores. About 70 percent of the neighborhood's housing is empty.

The number of abandoned homes scattered throughout the nation's 65,000 neighborhoods concerns federal officials because of the potential to prevent the economy from recovering. Empty housing feeds upon itself. Experts say as more houses stand vacant, property values and tax revenues drop. The drop in property values lead to fewer buyers, which lead to more vacancies.

The fallacy, of course, is the problem is not money per se. Money can't restore lost economic vitality for cities (or states). These neighborhoods exist in cities and states that are no longer economically competitive. Sometimes the factors are beyond the control of the cities themselves. Mobility, wealth, and technology have opened up opportunities to start businesses in other places, such as Phoenix, Houston, Dallas, Fort Worth, Atlanta, or, more presciently, Shanghai or Bangalore. No amount of money can offset these factors although many private groups and public officials are trying. 

Cities across the region are trying to reverse the tide, buying and either rehabilitating or bulldozing empty homes. Even with billions of federal dollars pouring into cities, civic leaders such as Steve Leeper, director of a Cincinnati development group, say fixing lead paint, asbestos, decay and other problems takes a long time.

So far, his nonprofit group, backed by local businesses, has spent $84 million to rehabilitate Over-the-Rhine housing.

"A 20-year vacancy is just brutal on a building," said Leeper, maneuvering past construction workers inside the dusty shell of what's planned as the future home of luxury condominiums.

Already, there are a more than dozen new shops, restaurants and small businesses in Over-the-Rhine, and more than 80 percent of the first new condos have been bought, at an average price of $150,000. Sales have been strong in 2009, Leeper said, particularly among first-time home buyers who don't have the problem of trying to also sell suburban homes in the down housing market.

 Yet, this isn't the whole story. Public policy can also play a role, although it can't overcome macro economic and demographic factors. Neighborhoods with deteriorating infrastructure, poor schools, high regulatory burdens, and high tax rates will be less hospitable to investment, innovation, and wealth creation. Cities can use innovative methods to improve service delivery such as competitive bidding, outsourcing, and public-private partnerships to reduce costs and improve service delivery. Cities can embrace school choice to provide competitive educational opportunities for families interesting in starying, or relocating.

 Whether the cycle of decline in Rust Belt neighborhoods is a "chicken or egg" problem is largely irrelevant. Cities need to size their public services to fit the scale and needs of their citizens and businesses. Many of the cities profiled in the AP story have a history of resisting practical efforts to improve city services, whether by thwarting competitive bidding or curtailing school choice.

Unfortunately, these aspects of public policy were not explored by the reporters. Thus, the story ends up following simple linear thinking about urban decline--once vibrant neighborhoods lost people and businesses, reducing their tax base, leading to underfunded public services. Thus, the logic goes, only money will pull them out.

If the neighborhoods are not competitive, however, no amount of money will restore their vitality.

Samuel Staley is Research Fellow


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