January 15, 2020
Activities: Administration, Crime / Legal, Economic Development, Housing / Shelter
Geography:
Demographics:
Annual ROI: 0.0%
Image source: Ken Leblanc, Jennifer Leonard, Joe Schilling
Vacant and abandoned properties are a problem for local governments, businesses and individuals. Typically the reasons go beyond simply being a government spending, with macroeconomic and social issues lying at the center.
Vacancies can result from any number of reasons: a corporation moves a plant to another state; developers decide to build new blocks of homes on the city’s fringe; or gentrification forces up the rents in the area causing eviction in less-developed, more blighted areas.
Whatever the cause, this is a major problem, especially for local governments. Vacancy and abandonment are major drains on local budgets. They create no property tax — no one is there to pay it. They also lower surrounding property values — no one wants to live near downtrodden, dangerous areas. So property tax, often the main source of revenue for a municipality, decreases in both volume (fewer properties paying tax) and rate (lower taxable value in the property base).
By all accounts, vacant properties are a curse. Just ask anyone who lives next to a drug den, a boarded-up firetrap or a trash-filled lot. But abandonment often seems beyond the control of local officials, and it rarely incites a sense of urgency beyond the neighbors on the block where it occurs.
But the evidence shows that vacant properties are an expense that local governments simply cannot afford – and that the expense grows with every year a property remains vacant or abandoned. Such properties produce no or little property tax income, but they require plenty of time, attention, and money.
Crime
Vacant properties often become a breeding ground for crime, tying up an inordinate amount of police resources. The City of Richmond, VA conducted an analysis of citywide crime data from the mid-90s. Of all the economic and demographic variables tested, vacant/abandoned properties had the highest correlation to the incidence of crime.
Another study focusing on crime in abandoned buildings in Austin, Texas found that crime rates on blocks with open abandoned buildings were twice as high as rates on matched blocks without open buildings.
The survey also found that “41 percent of abandoned buildings could be entered without use of force; of these open buildings, 83 percent showed evidence of illegal use by prostitutes, drug dealers, property criminals, and others. Even if 90 percent of the crimes prevented are merely displaced to the surrounding area, securing abandoned buildings appears to be a highly cost-effective crime control tactic for distressed neighborhoods.”
Lost Tax Revenue
Vacant properties reduce city tax revenues in three ways: they are often tax delinquent; their low value means they generate little in taxes; and they depress property values across an entire neighborhood. Lower property values mean lower tax revenues for local governments.
According to Frank Alexander, Interim Dean and Professor at Emory University Law School and an expert in housing issues, “failure of cities to collect even two to four percent of property taxes because of delinquencies and abandonment translates into $3 billion to $6 billion in lost revenues to local governments and school districts annually.”
Property taxes remain the single largest source of tax revenue under local control, so this loss of income is substantial. Taxes are often lost on vacant properties because of tax delinquency. Abandoned properties often become delinquent because the cost of paying taxes on the property may well exceed the value of the property. If the property goes into tax forfeiture, a common fate for vacant or abandoned properties, ownership is transferred to the municipality which tries to recover the lost taxes through the sale of the property. But such sales are problematic for several reasons.
Simply gaining title is a long and difficult process that consumes government resources. Once the title is obtained, cities often auction off delinquent properties for the amount of the tax lien, but the reclamation of all of the lost taxes is not guaranteed. One study found that 83 percent of the balance due is lost on foreclosed properties. When cities try to recover delinquent taxes on parcels where homes have been demolished, not only are they not able to recover the taxes, but typically the demolition itself was costly – in St. Paul, the overall loss to the city for a single demolished house is about $7,789.”
And while tax sales provide a source of income for municipalities, they do not ensure that the abandoned property will be put to productive use. The properties are sometimes purchased by speculators without any intent to restore them, and the process fails to assemble marketable parcels of land.
Even if the taxes are being paid, those taxes don’t amount to much. In St. Paul, a vacant lot produces $1,148 in property taxes over 20 years; an unrenovated but inhabited home generates $5,650, and a rehabilitated property generates $13,145.
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