The Great American Fire Sale
Investors have played, and will continue to play, an important role in foreclosure-ravaged communities. What can towns do to ensure investors are responsible, and what role can CDCs play?
By Alan Mallach Posted on December 24, 2010
The investors have landed. Since the end of the housing bubble, house prices have plummeted. Thousands of foreclosures are taking place every day, millions of homeowners are under water, and the supply of homes for sale continues to grow. Real estate, like nature, abhors a vacuum, and with demand from homebuyers still weak across the board, the vacuum has been filled by investors.
From Las Vegas to Detroit, from Phoenix to New Haven, thousands of real estate investors are taking advantage of the fire sale, picking up distressed real estate, buying REO (real-estate-owned or lender-owned) properties, bidding at foreclosure sales, or packaging short sales for homeowners facing foreclosure. In some areas, particularly in the Sun Belt, investors may make up as many as half of all the buyers in the market.
City officials and CDCs have watched the wave of investor purchases sweep over their communities with dismay. CDCs trying to buy REO properties to fix up and resell under the federal Neighborhood Stabilization Program (NSP) have seen the properties they want picked up instead by faster-moving investors. Neighbors have watched as one-time owner-occupied houses on their blocks become rental properties or just abandoned.
Two years ago, few cities or CDCs were much concerned about investors. Today, they have become one of the most urgent issues facing those who care about urban neighborhoods, yet many still do not fully understand what investors want and how their presence affects neighborhoods. Most understand even less how local governments, CDCs, and citizens can encourage responsible investor behavior, making them a positive rather than a negative force in their communities.
Alan Mallach, senior fellow at the Center for Community Progress, is the author of many works on housing and planning, including Bringing Buildings Back, A Decent Home, and Inclusionary Housing in International Perspective. He has served as director of housing and economic development for Trenton, N.J. from 1990 to 1999, and teaches in the City and Regional Planning program at Pratt Institute. He is also a fellow at the National Housing Institute.