5 E; '2.” "f @753 1‘. 1 { gynhnnv Ar'n“ n,-';..Lrs':..?'7 3'15““: Unix/MSW PLACE IN RETURN BOX to remove this checkout from your record. TO AVOID FINES return on or before date due. MAY BE RECALLED with earlier due date if requested. DAIEDUE DATEDUE DAIEDUE 6/07 p:/C|RC/DateDue.indd-p.1 HOUSIEG ABANDOENEL By Jane M. Komasara A PLAN B PAPER Submitted to Michigan State University in partial fulfillment of the requirements for the degree EASTER IE UiBlh PLAHLING School of Urban Planning and Landscape Architecture 1982 $3251}; ‘73 Section I Introduction Objectives Definition of Abandonment Section II The nature of abandonment Filtering Section III The Decision to Abandon Categories of Owners The Character of the Eenants Where Is Abandonment Occurring? Other Problems Associated with Abandonment new Construction Section IV Housing harket Processes Introduction The Housing Ia“ Financing, Jack Taxation , and Lending Section V Strategies for Action Section VI Conclusions Footnotes BibliOgraphy Page (NW ‘0 12 12 i4 i5 i7 22 25 28 SECT ION I Introduction Housing abandonment is a highly complex, dynamic process occurring in many American cities today. It is spreading regardless of the numerous remedies that have been applied to halt the process. Abandonment involves a combination of economic, social, psychological, and environmental forces which are at work in the neighborhood. It is the final, and most visible, step in neighborhood decline. Abandonment also reflects a much more deeply rooted and pervasive phenomenon -- the disinvestment of capital funds from the central core of our cities. The fact that abandonment turns relatively sound housing stock to dilapidated empty structures is a distressing and disturbins fact of many city neighborhoods. C.) Objectives This paper is primarily concerned with the nvture, rate, scale, and market forces involved in the abandonment process. Three principle objectives are: 1) Identify the forces leading to housing abandonment 2) Assess the role of market forces in the abandonment process 3) Present prospects for the alleviation or continuation of the abandonment process Definition of Abandonment There has been no precise definition of abandonment that is widely accepted. Several definitions have been sugg sted in recent years. fnong them: 1) A National Urban League Study: "When a landlord no longer provides services to an occupied building or allows taxes and mortgages to go unpaid, it is clear that the building is uninhabitable by all but deSperation standards. We consider such buildings to be finally abandoned. On the other hand, when a building is temporarily unoccupied or is to be demolished for another socially or economically useful purpose, it cannot be considered to be finally abandoned." 2) George Sternlieb of Rutgers University: "An abandoned building is a residential structure which the owner has removed from housing stock for no apparent alternative reason and for which no succeeding land use occurs. It occurs after cessation of housing services to the owner." 1 Abandonment is not an orderly process. It frequently occurs without a prior period of decay. This is a major concern of local officials. In fact, abandonment appears to precipitate rather than follow decay and even effects solid structures in physically sound neighborhoods, and not just those buildings and areas where deterioration has been occurring through the of a period of time.2 SBCT ION I I The lature of Abandopment It has been generally recognized that neighborhood changes I in American cities occur through a period of time. whether any orderly process exists which gulminates in abandonment is an unanswered quegtion. however, the U.S. Department of housing and Urban DeveIOpment has published the following stages of neighborhood decline which does attempt to define the process in some orderly fashion. (Roger Montgomery and Daniel R. c.) handelker, Housing in America: Problems and Perppectives, pp. 140-142). It is not meant to imply that these stages occur in order as abandonment also affects solid structures in sound neighborhoods. Stage 1° The healthy ggighbgphpgd. This stage can be found in both newly established neighborhoods and in older ones. There is a psychOIOgical sense of well-being. ho decay is occurring, adequate public services are being provided, and preperties are well maintained. households and firms with strong social and economic resources are entering the neigh— borhood. The value of homes, social status, and incomes of residents are generally comparable. '( A tase 2: The Incipient Decline Leighborhood. The neighborhood L) C is becoming physically and socially aged. Residents who are left are replaced with less affluent persons who are in turn replaced with those with even lower incom s. Residential structures may start to become obsolete and both house prices v--. and renal chargc s riay begin to decline. laintenance difficulties may begin to appear, households may tend to age, and the overall vitality of the .hoornood may begin to decline. Qhe Clegggy‘Declirii Lheignborheod. heighborhood Stage 3: residents recognize the cima ges that have occurred in Stage 2. Owners are neither able to make GLOU h monc ey to ie p their prOperty properly maintained nor are rental owners able to maize a profit. Residents are unable to afford adequate maintenance or repair services even though they might desire to continue living in the neighborhood. minor piysical deficiencies are plainly visible. Confidence in the neighborhood's future is low. Older housing units are being converted from sin le— amily to other uses and there is very lit ole new construction occurring. Epighborhood. heighbo hoods Stage 4: The AcceleratinL Declj pg“ are rapidly entering the final stages of decline. housing is very deteriorated and dilapidated with most of the build in. requiring major repair. heighborhood preperties are marketable to only the lowest socio—economic groups. General safety is threatened, social disintegration is apparent, and there is a significant degree of abandonment along with increased pessimis about the area's future. Stage 5: gbapdonment. The neighborhood is at the terminal point of change and is cha racterized by massive abandonment. The neighborhood consists of residents of the lowest social status and the lowest incomes. Expectation about the neighborhood's future is nil. Anyone living in the area with any options at all will move out. There are many welfare families, female- headed households, and unemployed people. Crime rates increas and vandalism occurs. The owners of buildings accept any kind of tenant and do not provide any upkeep for the building at all. The final stages of economic abandonment include the failure to pay mortgage and taxes by the owner. Physical abandonment is complete with tenant/owner departure, termination of services, and vandalism. At the point of physical abandonment the preperty is vacant, uninhabitable and unlikely or unable to be improved. In summation, certain elements can be identified as pertaining to the abandonment process: 1) there are buildings occupied by tenants who do not pay rent 2) services have been terminated, including utilities and heating 3) there are also declining physical conditions such as: vandalization, boarding—up, deterioration, dilapidation, unmaintained grounds, tax delinquency, public demolition because of hazards, private demolition with no succeeding land use occurring 4) also included are buildings that can be observed vacant and not secured, major appliances are removed, services are terminated, and the building is tax delinquent 5) there is observed partial occupancy and the owner has failed to demand rent for three months or failed to institute summary proceedings for payment A set of early warning indicators have been identified which lists conditions that foster abandonment. Thes are: A sentee Ownership Unwillingness of lenders to finance prOperties Large numbers of economically disadvantaged persons Low incomes high crime rates Tax Delinquency/fax Arrearage1 hew Construction Filtering Filtering refers to a situation in which households with increasingly lower incomes will sequentially occupy a housing unit or neighborhood. another way of looking at the process is to consider that the dwelling -as filtered down into a very low quality market so that it is finally drOpped from the market entirely and eventually abandoned.2 It appears that filtering plays a key role to understanding the abandonment process: as residential owners become more affluent, they demand a higher quality environment and better residential structures. The present stock of dwelling units and their location throughout an area limits the ability of cities to satisfy the demand for higher quality housing. As a result, demand for residential units has declined and part of the stock has filtered off the market. Census Bureau or HUD criteria may indicate that some of the structures are sound but it is not desirable housing because of either the undesirable surroundings or poor provision of public services. Vacant structures within core areas were viewed as a positive sign that the filtering down process vas resulting in structures that were no longer competitive on the housing market. That is, the development of new and better housing results in a series of shifts of families with each shift providing a household with better accomodations. Abandonment is taken as a sign of housing betterment. What has gradually become clear is that abandonment has a life force all its own that cannot be filtering process. Solid housing stock away by abandonment which is indicative process is much more than the Operation Xplained merely by the is also being swept that the abandonment of normal market forces. 3 .9. ECTION III ("a c The Decision to Abandon Basically, a property owner's decision to abandon is an economic one. The property will sell for half or a third as much as the property in more desirable neighborhoods. Large numbers of white families have left the city along with large numbers of middle class minority families who have moved to more desirable locations. This results in vacated housing which is available to lower income minorities and elderly whites. As there is little demand for housing in inferior neighborhoods, structures are demolished or left abandoned. The decision to abandon occurs when an owner sees little chance of paying prOperty taxes and Operating costs and still obtaining a margin of profit. If there is little or no return on his equity, an owner will not retain his prOperty even if there are tenants able and willing to pay, or if rents are too low to cover water bills, electricity, heat, maintenance, and real estate taxes.1 Code enforcement is also an important factor in the decision to abandon because it brings pressure on the home owner to bring his preperty up to code. If he has confidence in the area's future, he will make the necessary investment to bring the property up to code. If not, he may decide to abandon. abandonment is the owner or H: ihe major economic cause 0 landlord's decision to stop maintaining and financially supporting a structure. Services are no longer provided; mortgages and tax s are allowed to go urpaid. All in all, the structure is regarded as a liability rather than an asset. J l ,i 71‘ m3 Abandonment involves both psychological and social factors. The owner abandons his preperty due to a perception of the neigh— borhood and the likelihood of declining revenues. Qhe owner is i 1 no longer willing to make future investments in the structure. Local lenders also indicate an unwillir=ness to assist in making any investments. aWhInever a property owner begins to experience a negative cash flow then a andOnment becomes a feasible economic lf of the 3/7) solution unless there is the potentia to rid hins . , 2 prOperty through sales. Categories of Owners: Kany absentee owners, particularly in minority areas, are small parcel holders ownin7 perhaps tn 0 to 3 a half dozen parcels. Owners who are faced with decaying buildingfi 0, increasing violations, and see their houses turning into slum housing, often decide to ab andon their buildin e if unable to find a buyer. Various l-gal means, such as securi: g a tenant or transient and transferring title for a rominal sum, 4 are used to avoid legal liability. fhe Uha araCter of_thgw2epants: Owners whose parcels are abandoned contend that tenants are the number one problem. These 0 ners have a much more negative attitude toward their tenants than those owners whose parcels were not abandoned. One of the patterns which emerges consistently in the case studies of abandonment is the decline in socio—economic status of the 5 ten .1 t.s ‘.‘.’here Is lender Ii'ent Occuc;1“in"7‘?: Abciilormient is occurring the area previously described. Dhe chances of the private sector V“ ‘3 1O putting any investment funds in these areas are practically nil. These are redlined areas in fact. Thus abandonment and disin- vestment are likely to continue far into the future. These areas are large sections of the inner city where there are still high vacancy rates existing. Lunicipalities in which abandonment is rapidly accelerating are those which are experiencing an absolute pepulation decline and whose more affluent minority members are moving out of the city.b Other Problems Associated with Abandonment There are three clearly recognisable effects of housing abandonment: 1) loss of housing stock 2) losses from preperty tax and 3) loss of private investment capital. however, second ry effects which have important physical and social effects may also be reCOgnized. ibandoned buildings present obvious physical hazards for any neighborhood. fhey are havens for rats and other vermin. They become dangerous playgrounds for neighborhood children and are unattractive nuisances. They are targets for arson aid fire. I -2 . . /J CO k7} Studies done in hewark, Boston, and Detroit ha e shown that 1 of all fires in these cities take place in vacant or abandoned . ,. 7 buildings. Bhe risi e incidence of crime and abandonment appear to '0 be traits of neighborhoods undergoing rapid decline. ihe --. .1 «a, _‘ - '1 place i0? rims and abandoned structure becomes a breeding cr minal activity. n 11 In addition owners have diificnlty in securin local involvement in such buildinws. Chey are unable adequa e repair and maintenance services. These eifiiculties are c‘uscu for a number of reasons, Incluui 3 fear of crime. .., Part of the d finition cf ntardcrnert i eludes the owner reliliou ishinw responsi isiiity for tie hr'ic”l state of the building. As such, concern for the building is re:;.ced to a minimum. The ownigr, ifidll lit le stake in the future of lis building, las little incentive to report ille g al b avior. These OhlJClL“S offer opportunities for crimes of preperty or Q ~ . . J Violence. £e_y_ Lod;trtction° ew const ucti on also presents prob ems associated with L NJOLUvJ . Government programs which raise te of on Mtruct ion I often have the effect of acceler— atinn; Iwou in3 abandonment. Construction subsidy programs for moderate income families, by accelerating filtering, decay, and l “ aband nment, appear to have tnrwarted neighborhooe stabilisauio n . 10 n. r . . efiorts in some cases. Algfl finanCing costs, axes, and aintenance expenditures may 1Jrevent rents and prices in housing formerly ewcupi ed by hig her income groups from falling enough to come within range of loner income families, particularly L.) ' ' - 1 11 in times of houSing shortage. (1 ECTION IV ~fi n 12 7“ "1. 1. %~‘. ,1,“ 7— . ‘ ‘_‘ housing .irhpt KTOCQLwds a-.— L ,. 1 J. ' IntrCuuc i_n —-——'—-——- - »—.~—«-—-—..— T' O I ,. ,'\ ‘rf' ' ’1’“?! .1 L'V (“ 1 r“\t ‘1 “Mr J)! "V- ,r~ 3' q 2' tr. , ~- 1 ,-., fiOUSch market d nanics and abanuOnmeit can be Viewed through L.) d ,> 4. 1, - . - ‘ ' 1 “w. , -1. .M, 1 1.. , “ wa cainhing patterns. inc long term yIOCGSS tanes ghice over consists of a declinixg central city pepu- lation, increased urban fringe and suburban growth, and a general upgrading of housing stock. rhe short tern process involves only a few neighborhoods in the metronolitan area. Characteristics include racial change, decline in neighborhood median income, and decline in the pronerty value of housing stock. Later stages might include depreciation of housin: stock to the ext.nt that ._) '_ _‘ . ‘1‘. -r‘\1 _ 1 aband0nnent taxes place. There have been several hypothes s suffiested to explain the housing market dynamics of cities. Weakening of the market is the result of 1) age of the housing stock 2) movement of the population in response to the suburbanisation of jobs i .. n . ,. . A- . . . 2 5) "unite flight" or 4) income eIIects on housinx values. "\ The demand side OI abando ment is explained by the premise that existing core housing stock is difficult to transform into another use. Demand for these units has declined to the extent that it is no longer profitable to own or operate them and they cease to have any ecoromic value in their present state. 13 Chis image of obsolescence for i :ncr—city housing stems in large part from market preference for suburban living and the rise in income which aellons these preiei ences to be satisfied. is families with rising incomes move out to better locations .i the filtcri n.3 process is introduced whereby better structures are made available to lower income Groups, which in turn results in the abandonment of the worst sections of inner city stock. Lenders withdrev from the ner1:et and any upgradin3 which occurs in stable nei 3hborhoods in order to combat obsolescence ceas s and the city red uses its level of services. 30, even while tne residence is still occupied the a andonment process is already at work. lhere he ve been cases where it appears that initial abandonment in sound neighborhoods is not preceded by a period in which the neighborhood gradually decays. Instea , it appears to occur in neighborhoods of still standard physical quality which have reached a stage where rehabilitation or new construc- tion ca1mrot pay for itself unless residents of higher income move in or are charged higher rents. When neighborhoods have reached this stage trey are in jeep rdy for two reasons: 1) new construction will be taking place elsewhere which will result in higher prices and rents that will affect the threatened neighborhood by pushing its value down 2) with the values now down so low, private owners will certainly not return heavily vandalized or burned out structures to the housing inventory even if investments could be made. .vidence sug .ests that once initial abandonment of damaged buildings occurs in such (1 14 neighborhoods and if the structures are not quickly demolisied or brought back into the market through public action, it may lead to disinvestment in he neighborhood all together. Perhaps the major problem is the xtremely unfavorable relationship between existing market values in neighborhoods and the cost of repairs. Where cost estimates per dwelling unit are in the $5000—$10,000 range then the cost of restoring the structure would likely exceed its restored value in most instances and would have been a loss to the individual investor. There also exists investor pessimism about the future of these neighborhoods. Without this pessimism, it is likely that market 4 values would have been higher and repairs seen as feasible. “—1" 1 x . '3‘ . a ‘ v 7 T - ‘ flhaLClnb, banne, and hendina Che institutional financing market -- b(nks, mortgage and lending institutions -— have largely shunned the areas in which abandonment is occurring. Chis has had the effect of compounding the problem. Sound rehabilitation for distressed neighborhoods requires lon: term financina. This in arts a belief in the economic .) g) viability of both the structure and the area not only as to its present state but also its financia future. This basic level of confidence has disappeared from areas in which abandoraent is OCCUL I‘lnb. It is not uncommon that financing for rehabilitation work in slum areas is available at extremely high rates. When an owner is asked why he abandoned his preperty, the owner occasionally will (“'1 (w 15 reply that it was because the market failed to provide enough encoura3ement ir the way of increased rents and capital gains to make it worth the effort iivolved. 1:!hen lending; involves high risk, it is then reflected in the cost of the loan. banks and other financial institutions care relunctant to e} :tcnd second mort tgazes on such preperties.r Ta: {ation: _’is cities do not immrdiately acquire title to tax delinquent parcels, pr pcrty tax may not necessarily influence the rate of abandonment. If an investor succeeds in estimating the date at which he will not receive positive ca: h flew without payment of property taxes, than the investor can time his preperty tax defaults so that the city does not foreclose. The investor can cer. oe payin;3 property taxes a;:d then abandon the parcel at the most dvinuaeeeus point. n effect, the preperty tax responsibility becomes insi “iiicznt since lon3 before abendon- ment occurs the landlord has stepped pivina his taxes. rhe city, when it forecloses on tax delinquent parcels, maintains records on 13 :33 properties. These are preperties in which legal pl oceedings for feieclosure h ave ended and the city has assumed ownership.8 The result of all this is that the city, through tax default, becomes the owner of inner city real estate. Since the city pur cha.es abandoned structures, it encourages owners to ruin their structures through non-improvement. In their studies of St. Louis and Chicago, the firm of Linton, hields, and Ceston showed that not only did vacant tructures 30 on accumula tir;3 tax liability after abandonment, but, while tile me irke t value was decrees n3, tax bills were increasing. in several studies done, it has been implied that preperty tax is the major cause of housin3 abandonment. Without prOperty tan payinents, the operatin3 statement of a landlord would show a profit. With the 0a"301ts, it shows a zable loss. It is claimed that the owner is forced to abandon his prOperty because of the tax burden.10 Once a landlord begins to default on his property tax payments, he has in eifect already L1- ade his dre cision to abandon. The need to pay off back tax liability makes it unlih ely that an owner would restore his vaperty to good Operatin3 condition. Ch SECTION V .4" 17 L J- J— .3. ' ,A. T" A ' .,. strategies ior aCthh Local governments are using a wide variety of approaches and strategies to prevent abandonment from occurrin3. Among these are: comprehensive nei3hborhood preservation, code enforcement, focused public services, rehabilitation financin3, and urban homesteading. .1. If the potential for rehabilitation of abandoned structures is not to be lost, cities must be able to acquire these structures much more quickly than is presently done. Delays in acquisition mean that thousands of housin3 units have fallen into an unrehabilitable state. A method to short—cut the process for the city to acquire abandoned property is to shorten the period of time for determining that a building is abandoned and thus allow the city to move moere quickly while the building is still rehabitable. Receivership prOgrams can be vi3orously enforced whereby the Operation of a rental unit can be taken over from an owner who has neglected to maintain iis preperty. It is during the sta es where housing is moderately declining where efforts 3 of neighborhood preservation can play a major role. the aban”oned structure is symbolic of decay in the low income housing market. It is the most visible and acute symbol of urban blight. Three things can be done to help halt abandon- ment at its inception: 1) areas peripheral to blighted areas must be protected. This a i means that confidence in the housing ma net and the neighbor- hood must be restored 18 evelOpment of indicators that will give a barometer reading 01 2) of the dynamicscfzm1area. fhat is, these are indicators which will reflect wim t1er rising, declining, or stable market forces are in operation 3) iemolition programs that make sense fl One means for the city to oW ain JL“u1ulthL OI abandoned is through tax delinquency UTOCVudLMN” Ehe time factor is the principle limitation of this device. Local 5 vernments utilize tax :Wo eclo sure proceedings that take from on- to five years before tLev can be instituted and which then typically require up to another year to finalize. By this time many of the units are u: mr eh ibilitable. Resolution of this problem will clearly require state and local legislative action. For example, annual tax- s in Baltimore are levied on July 1st. If unpaid, the prOperty is considered delinquent and a tax sale is ordered the following March. Ohio has enacted enabling legislation which allows cities to gain control of abandoned prOperty more quickly. The city is no longer required to find and notify prOperty owners individually, but may acquire a preperty after its second appearance at a sheriff's sale and after notification of intent has been publisheddn newspapers.3 Very few tactics that have been employed have had success in upgrading areas that have reached the accelerated decline stage and the abandonment stage. The only effective solution at these tflg seems to be total or partial clea1ance through demolition. On the other hand, with incipient decline areas there are many different tactics tlat can be employed successfully to halt the ”x I. T“ 19 decline and help restore neighborhood viability. It is very difficult to reverse the decline once it has gone beyond the clearly declining stage, but neighborhood stabilization can take place. Upgrading efforts have a much higher chance of success in the earlier stages. Local governments can allocate their community development resources according to a basic priciple. fhat is, the smallest amount of funds should be allocated to producing high visibility effects in healthy neighborhoods. Remaining funds should be divided between major physical upgrading of borderline neighbor- hoods and limited physical improvements in very deteriorated neighborhoods. The major portion of community development funds is concentrated on in-between areas.4 In very deteriorated areas, it is important that local governments continue to provide all public services such as police, fire, trash removal, and street repair and maintenance. homesteading is a relatively recent program designed to combat abandonment. A homesteader purchases a parcel and agrees to live there and rehabilitate the structure within a specified time period in exchange for title to the prOperty. As yet, the total impact of homesteading on the abandonment process has been small. horeover, an urban homesteading program does not attack neighborhood socio—economic problems that lead to abandonment. Cities are therefore left with two alternatives. The first is to incorporate urban homesteading within a neighborhood preser— vation prOgram and select a andoned units in generally stable £4- 20 gi. nei3hborhoods for the pr03ram. Socon , urban homesteading can be used as a method to dis,wo e of prOperty with little re 3ard to neighborhood condition.5 Urban homesteadin3 has been rationalised as being beneficial because it is the lowest cost way to add to a city's hous in3 stock and it is a method oy which abandoned structures can be rehabilitated without any subsidy on the part of the city. Vi3orous lwou in3 cos e enforcement in areas just be3inning to decline can effectively help step the decline. Code en: orce- ment puts pressure on the prOperty owner to invest in brin3in3 his prOperty up to code or to abandon. The decision by local 3overnment to enforce housin3 code standrrds forces the wner to come to a decision. he must either choose to minimize his losses by unsradinm his prep ert y to code standards or withdcaw the property from the market. ihi s decision must be put to th e OJner while the prOperty is still in the early sta3es of decline because there is the possibility that lar3e scale abandOnments rather than Hub tantial up3ra_in3 of lower quality housin3 stock could occur:7 Enforcement actions -- vacate orders, demolition and receivership powers, denyin3 federal income tax depreciation in, tne hous'n3 code —— all H, allowances to buildin3s in violation 0 run the risk that the prOperty owner will just abandon his property rather than make the necessary repairs. Chis h s led to a lax attitude toward code enior