Guest Blogger Margery Austin Turner: Spillovers from the Foreclosure Crisis – The Challenge for Local Housing Policies

It is becoming abundantly clear that the foreclosure crisis is generating serious spill-over effects for families, communities, and local governments. When home foreclosures are relatively rare and widely scattered their impacts are generally quite limited. But the high rates of foreclosures occurring today can trigger much wider damage, spilling over to undermine the well-being of neighbors, neighborhoods, and whole communities. Foreclosed properties stand vacant, maintenance suffers, disorder and crime rise, surrounding house values decline, and costs to local government climb while property tax revenues fall.

This spillover story varies widely across neighborhoods and across markets. Toxic loans were not scattered randomly across the housing landscape. Their density and potential damage is much higher in black and Latino neighborhoods than in white neighborhoods. But even neighborhoods where subprime loans and foreclosure risks are high can weather the storm if the surrounding housing market remains reasonably strong.

The challenges for policy and practice mount in markets where housing demand is weak. Efforts to acquire and rehab vacant properties will come to naught in the absence of investors or homeowners willing to buy. Under these conditions, the only viable option may be to acquire properties and hold them in a land bank -- possibly creating parks, play spaces, or gardens -- until the market recovers.

Policymakers at every level of government have to respond quickly to prevent more foreclosures and to forestall spillovers. But we should also be looking ahead to craft neighborhood stabilization strategies that tackle longer term problems, including the shortage of moderately priced housing – particularly rentals -- in opportunity rich communities. By strategically acquiring foreclosed properties and transferring ownership to nonprofits and local public housing agencies, governments could expand affordable options in neighborhoods that were previously out of reach.

Margery Austin Turner is a widely respected expert on urban policy, racial and ethnic discrimination’s consequences for families and neighborhoods and the role of housing policies in promoting residential mobility and access to opportunity. Turner currently serves as the vice president for research at the Urban Institute.