Land Banks on the Rise
Dan Kildee, Genesee County Tresurer, founded the Genesee County Land Bank to address poor land use, population decline and abandonment in and around Flint, Michigan.
By Bendix Anderson
Since the real estate bubble burst, the use of land banks has spread in severely depressed real estate markets where typical prices for homes have dropped precipitously. Implementing land banks is a proven approach to stabilizing markets in these distressed areas.
What Exactly Is a Land Bank?
There is no is no rigid definition of a land bank. Most broadly applied, the definition encompasses any local government that holds onto tax-foreclosed properties instead of selling them at auction. Yet, effective land banking requires local officials to make a plan to manage and find a use for those properties, and so jurisdictions often establish public authorities to handle these properties.
Land banks help limit the damage that vacant and abandoned properties inflict on their neighborhoods by keeping these homes and lots out of the hands of speculators. Land banks are most effective in areas where the supply of properties significantly exceeds demand, with no sign of reaching equilibrium, according to Alan Mallach, senior fellow at the National Housing Institute. As a result, prices fall so low for some properties that owners simply abandon them.
For example, Cleveland has both massive amounts of and little demand for vacant and abandoned properties. Cuyahoga County, which includes the city, recently established an ambitious land bank to deal with these empty homes. In late 2009, the land bank agreed with Fannie Mae to hold the lender accountable for demolition costs associated with its foreclosed properties, and in January, the land bank received $40 million through the federal Neighborhood Stabilization Program to purchase and rehabilitate foreclosed homes. The Ohio legislature is now considering allowing other counties to create their own land banks.
Older cities like Atlanta, Houston, and Miami are even further along in their use of land banking, says Ed McMahon, a senior fellow with the Urban Land Institute. These cities all had identifiable submarkets with weak demand for housing before the building boom and bust.
A Model: Genesee County Land Bank
Perhaps the best-known land bank is the Genesee County Land Bank, which since 2002 has claimed 9,000 properties. Of those, 4,000 have passed to new owners, often families intending to live in the homes or affordable housing developers planning to redevelop the lots. Nearly a thousand empty houses have been demolished and in some cases the land added to the lot next door.
Once the land bank finds a new owner for a property, the house or lot rarely goes through foreclosure again. Of 1,500 recent properties that passed through the land bank, only 18 were seized again by the county for property tax foreclosure within the subsequent two years.
The Genesee Land Bank currently owns and manages 5,000 of the 18,000 vacant properties in the county. “We admittedly don’t quickly find new owners for many or most properties,” says Dan Kildee, who oversees the Genesee County Land Bank. However, ownership by Genesee’s land bank is often much less expensive than any alternatives.
Not Right for Everyone
The key to evaluating which markets work best for land banks remains elusive. Local governments in cities like Phoenix resist creating land banks because vacant homes can be difficult and expensive to manage—it costs tens of thousands of dollars just to demolish them. Most foreclosed homes are seized by banks for failure to pay mortgages, not by the local government for failure to pay taxes. Cities like Phoenix, where foreclosed homes are selling at auction for $75,000-$80,000, would have to spend a tremendous amount of money to take control of a significant number of these homes.
The more suitable “land bank markets” tend to be areas that are losing population and jobs, such as Rust Belt cities like Flint and Cleveland, though many towns in the Sun Belt are considering starting their own land banks.
Since the real estate bubble burst, the use of land banks has spread in severely depressed real estate markets where typical prices for homes have dropped precipitously. Implementing land banks is a proven approach to stabilizing markets in these distressed areas.
What Exactly Is a Land Bank?
There is no is no rigid definition of a land bank. Most broadly applied, the definition encompasses any local government that holds onto tax-foreclosed properties instead of selling them at auction. Yet, effective land banking requires local officials to make a plan to manage and find a use for those properties, and so jurisdictions often establish public authorities to handle these properties.
Land banks help limit the damage that vacant and abandoned properties inflict on their neighborhoods by keeping these homes and lots out of the hands of speculators. Land banks are most effective in areas where the supply of properties significantly exceeds demand, with no sign of reaching equilibrium, according to Alan Mallach, senior fellow at the National Housing Institute. As a result, prices fall so low for some properties that owners simply abandon them.
For example, Cleveland has both massive amounts of and little demand for vacant and abandoned properties. Cuyahoga County, which includes the city, recently established an ambitious land bank to deal with these empty homes. In late 2009, the land bank agreed with Fannie Mae to hold the lender accountable for demolition costs associated with its foreclosed properties, and in January, the land bank received $40 million through the federal Neighborhood Stabilization Program to purchase and rehabilitate foreclosed homes. The Ohio legislature is now considering allowing other counties to create their own land banks.
Older cities like Atlanta, Houston, and Miami are even further along in their use of land banking, says Ed McMahon, a senior fellow with the Urban Land Institute. These cities all had identifiable submarkets with weak demand for housing before the building boom and bust.
A Model: Genesee County Land Bank
Perhaps the best-known land bank is the Genesee County Land Bank, which since 2002 has claimed 9,000 properties. Of those, 4,000 have passed to new owners, often families intending to live in the homes or affordable housing developers planning to redevelop the lots. Nearly a thousand empty houses have been demolished and in some cases the land added to the lot next door.
Once the land bank finds a new owner for a property, the house or lot rarely goes through foreclosure again. Of 1,500 recent properties that passed through the land bank, only 18 were seized again by the county for property tax foreclosure within the subsequent two years.
The Genesee Land Bank currently owns and manages 5,000 of the 18,000 vacant properties in the county. “We admittedly don’t quickly find new owners for many or most properties,” says Dan Kildee, who oversees the Genesee County Land Bank. However, ownership by Genesee’s land bank is often much less expensive than any alternatives.
Not Right for Everyone
The key to evaluating which markets work best for land banks remains elusive. Local governments in cities like Phoenix resist creating land banks because vacant homes can be difficult and expensive to manage—it costs tens of thousands of dollars just to demolish them. Most foreclosed homes are seized by banks for failure to pay mortgages, not by the local government for failure to pay taxes. Cities like Phoenix, where foreclosed homes are selling at auction for $75,000-$80,000, would have to spend a tremendous amount of money to take control of a significant number of these homes.
The more suitable “land bank markets” tend to be areas that are losing population and jobs, such as Rust Belt cities like Flint and Cleveland, though many towns in the Sun Belt are considering starting their own land banks.