• The Stimulus: Making Sense of it All

Neighborhoods across the United States have been devastated by the impact of foreclosures and are struggling to stay afloat. The U.S. Department of Housing and Urban Development’s Neighborhood Stabilization Program (NSP) is intended to mitigate the effects of foreclosures on communities, including vacant and abandoned properties that diminish the value of nearby homes, reduction of property tax revenue, an increase in vandalism and criminal activity, not to mention additional municipal costs caused by an increased need for vermin control, nuisance abatement, code enforcement, and police and fire department surveillance and response.

Schools and health departments are also impacted as widespread displacement disrupts curricula, creates or exacerbates mental health challenges, and interrupts medical care for the sick and elderly.

However, even with a combined $5.9 billion from both rounds of NSP funding, the problems our communities are facing are greater than the resources available to help.

Most NSP-eligible activities require significant planning before local residents will see any results, so it is too soon to speak with any certainty about how the program will affect America’s neighborhoods and the families that live in them. During the first three months of the first round of NSP, many communities had spent money only on planning and administration, so our analysis of the program’s effect is of necessity limited to some projections about NSP’s benefits and challenges and what they’ll mean for its implementation.

While the scope of the need is overwhelming, NSP can play a much-needed role in bringing stability back to struggling communities. Minneapolis, for example, estimates that its NSP 1 funding will help coordinate the recovery of 945 properties, or 32 percent of the city’s annual foreclosures. To use NSP to its fullest, communities will need to make difficult decisions and target funding to a handful of neighborhoods where the funds could make a substantial difference rather than spreading the funds equally to affected areas. NSP can only make a strong impact on a neighborhood if stabilization outweighs new foreclosures and vacancies. If one home per block is restored while another two go into foreclosure the neighborhood will be worse off despite the federal investment. Communities that are willing to target funding to a small number of areas will help their residents more than if they tried to help every resident a little. In addition, the most successful communities are the ones that are able to leverage funds from other sources—state, local or private entities.

Although NSP can serve America’s neighborhoods well, it has its drawbacks. In an effort to get funding out the door and into communities quickly, NSP imposes a tight, 18-month deadline for communities to allocate funds or return unused money to HUD. This means that communities with strong capacity at the outset—namely, those with highly effective affordable housing developers and community development corporations, a pre-existing framework for redeveloping vacant properties, and a more agile government—are more likely to be able to use NSP to reduce neighborhood decline and perhaps even stabilize a few areas. But communities with less capacity are likely to see little impact before time runs out. Although it would be hard to design a program that works both quickly and equally well in communities regardless of their prior housing redevelopment capacity, the likely uneven outcome will be a disappointment to struggling communities.

The tight deadline for allocating NSP funds notwithstanding, the program is insufficiently nimble to be of immediate, noticeable benefit to neighborhoods and local residents. As we have already noted, there is some lag-time between determining that a neighborhood needs stabilization and being able to get an NSP effort off the ground. Demolition, purchase and rehabilitation, and redevelopment activities all require substantial preliminary work before there will be any noticeable stabilization. This means that the number of foreclosures and deleterious effects may continue to grow and impact even more families before neighborhoods see any relief. To help residents in the meantime, communities will need to do more than plan for NSP activities.

Having and following an NSP plan, even a strong one, is not enough on its own to stabilize communities hit hard by foreclosures. NSP is essentially just a property reuse and demolition program, but neighborhood stabilization also requires investment in police, fire, and community watch programs as well as quality of life improvements to boost an area’s appeal to both existing residents and potential renters and homebuyers. Bringing stability back may require looking beyond physical improvements in the housing stock and considering school performance, transit accessibility, employment opportunities, grocery and retail access, and neighborhood safety initiatives. Communities can help families more quickly and comprehensively by looking at NSP as just part of a broad stabilization effort.