Neighborhood Indicators for Recovery

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 Community Development Applied Research Seminar Series

Pittsburgh, Pennsylvania
May 15, 2009

Introduction

While communities continue to struggle with foreclosures and vacancies, they must also contend with a new, more forward-looking challenge: recovery. Limited resources and the ongoing housing crisis make strategic planning for recovery crucial. At this stage of the game, data and tools aimed at helping community leaders make informed decisions are enormously valuable. Indicators of real-estate-owned properties (REOs), vacancy, and market value have been developed and applied to some areas, to useful effect. But there still is an urgent need to understand these tools, interpret their results correctly, and adapt them to the different data resources and characteristics of each locality.

The second round of Neighborhood Stabilization Program (NSP) funds totaling $1.93 billion will soon be on the way, and communities across the country must soon decide how to put those dollars to their best and highest use. Which building, block, or entire neighborhood would benefit most from reinvestment? Experts in the field of indicator-building and data analysis gathered in Pittsburgh, Pennsylvania to discuss new tools aimed at helping community leaders make important decisions.

“We know that everybody in this room has the same objective – to bring well-being to our communities, especially low and moderate income communities,” said Francisca Richter, a Community Development research economist with the Federal Reserve Bank of Cleveland. “Your participation today will help us understand how we can best use data and indicators to start on the road to recovery of our communities.”

Neighborhood Stabilization Tools in Pennsylvania

The first round of NSP funds were substantial in size, but many communities still found them insufficient or ineffectively deployed to break the housing crisis cycle. In describing his case study, Neighborhood Stabilization Tools in Pennsylvania, the Reinvestment Fund’s Ira Goldstein observed that traditional methods of distributing stabilization funds are unlikely to yield tangible results. Too often, funds are either applied in relatively small amounts in areas with large problems; or in relatively large places with small problems. In Pennsylvania alone, “We have distributed dozens of millions of dollars over the decade, and frankly if you look at those places today you would see no evidence of those dozens of millions of dollars,” said Goldstein, who is the nonprofit TRF’s director of policy solutions.

TRF developed an indicator that helps target areas with the best chances of seeing a recovery – places dealing with the effects of foreclosures and vacancies, but not areas enduring long-term decline and population loss unrelated to the current crisis.

The TRF indicator adds to the information captured by the U.S. Department of Housing and Urban Development, or HUD, neighborhood risk index, which focuses on the highest-risk areas. Pennsylvania wanted to deal out its allotment of NSP funds to programs “informed by the size, location, and dimensions” of the problem, Goldstein said. Toward that end, the TRF index can be layered on top of the HUD risk index, to give an updated risk index scale based on several indicators: trends and current loan performance data, the prevalence of real-estate owned (REO) properties in 1,000-square-foot areas, sales price information, and (where available) TRF’s Market Value Analysis, which describes local markets at the Census block level.

TRF has created an instruction manual and county-specific maps that drill down into all of the data to pinpoint places of interest. “The idea is to give somebody a tool they could use to make an objective, systematic database-driven decision on how to spend NSP dollars,” Goldstein said.

REO Stabilization Opportunity Score: An Analytical Tool for More Effective Community Stabilization Efforts

A standout feature of the current housing crisis is the rising concentration of properties that have been foreclosed and then failed to find a buyer in auction. These are called real-estate-owned properties because the lenders have reluctantly taken back ownership. To address the mounting problem with REOs – perhaps in contrast to places where the risk of foreclosures seems great but most properties have not yet moved on to REO status -- the Federal Reserve Bank of Boston’s Kai-Yan Lee developed the REO SOS Index. It is designed to assist local groups identify prime opportunities for redeveloping REO properties with the overarching goal of stabilizing neighborhoods affected by the foreclosure crisis. It might be considered a proxy for gauging the strength or weakness of a particular housing market.

The index evaluates the current and future availability of REOs and local real estate market health by looking at the availability of REOs, delinquencies, median time of an REO on the market, and the medial home sales price decline. A higher score indicates a higher distressed level, though Lee emphasized that it might not necessarily indicate higher potential for stabilization with reinvestment. The tool allows communities to distinguish between neighborhoods where REOs are so widespread that land banking might be the appropriate solution, and neighborhoods where REOs have only left a marginal impact so that rehabilitating a handful of properties might be the proper approach. Lee used the tool to analyze neighborhoods in the Boston area targeted by HUD risk scores and observed some spots where fast-declining sale prices sends a strong warning signal that investors will be less likely to venture into such neighborhoods. In such hard hit areas, NSP funds may be ineffective.

“It can help to take this score to the local level and use it as part of the analysis and part of the negotiating stage with lenders or with NSP officials to work out sensible solutions that would fit the local REO market,” Lee said.

Spatial Concentration of Foreclosed and Real-Estate-Owned Properties

In some neighborhoods devastated by the foreclosure crisis, time is short, and remedies must be quickly developed. Chris Walker, director of research and assessment for the Local Initiatives Support Coalition (LISC), described his job as providing communities with tools that are “quick and dirty but have the virtue of being easy to do and use data available everywhere.”

LISC created an Intrastate Foreclosure Needs Score that places each ZIP code relative to the worst-off ZIP code in each state. The three different treatments embedded in the score are the percent of subprime loans times the number of subprime loans, the percent of 30-day delinquencies times the number of 30-day delinquencies, and the percent of foreclosures times the number of foreclosures. The resulting distribution in Pennsylvania, for example, shows a long tail and a high concentration of problem spots – making it easier for practitioners to locate likely areas for reinvestment. As with the other indexes, the LISC score is intended to help local practitioners better understand their markets so as to better craft viable policy solutions.

LISC complements its foreclosure score with a Housing Market Index, based on publicly available data ranging from the number or home purchases to the percent of home loans that were subprime. “We have a strong interest in seeing funding go to places of high need,” Walker said. “Our response should match the market somehow. So we need a good handle on what the heck a market is.”

Risky Business: Housing Data, Vacancy, and Abandonment

Cleveland State University associate professor Brian Mikelbank has focused much of his work on determining the financial effects of foreclosures and vacancies on neighborhoods. Recently, he helped the school’s Center for Housing Research and Policy develop a composite indicator to capture broader risks in local markets and assess the risk of specific properties slipping into vacancy and abandonment. “When we use any indicator, we are simplifying,” Mikelbank said. “We are taking data and trying to draw messages from the data, and perhaps there’s a risk that we aren’t doing it well. But well done and interpreted, it delivers information to us so that we have the ability to make informed decisions.”

Mikelbank’s composite indicator can be used citywide but also is scalable; that is, able to be applied on multiple levels of geography. Data collected by cities for administrative purposes can be pulled into the indicator. At the parcel level, data such as age and appreciation can be valuable. Likewise, neighborhood-level data such as foreclosures, median household income, and residential turnover can be easily integrated into the index. Simply described, an input variable such as “age” gets a value close to 1 if the property is old and thus more likely (statistically speaking) to become vacant, or closer to zero if it is newer and thus less likely to go vacant. Values are similarly assigned for the rest of the variables until each parcel can obtain a composite score.

The indicator can easily be plugged into thematic maps, or to create histograms, making it straightforward to interpret. Using widely available data, virtually any community can make decisions about outreach and policy based at least in part on this indicator.  “What we hope most of all is that it’s a starting point,” Mikelbank said.

Informing Society in the 21st Century

The seminar took a brief detour from housing issues with the noontime presentation of Chris Hoenig, president of the nonprofit State of the USA. Hoenig’s group is engaged in an ambitious project to provide public access to indicators of well-being and development. Health, education, the economy, and the environment are just a few of the areas that can be compared at a national and international level. The group wants nothing less than to reach the ambitious goal of “achieving a new level of shared understanding, enriched dialogue, and informed choice about progress in all areas of society,” Hoenig said.

How? The State of the USA has taken several years to create a single, free online source where people can download the “most relevant, high-quality data” on the nation’s major issues, including health care, energy, education, and the economy. Hoenig demonstrated a beta version of the State of the USA website. New technology allows for visualization of database trends, such as growth in per capita spending on health care by country, as represented by enlarging bubbles moving across a screen. The power of these analytical tools will be put to bear on scores of datasets, Hoenig said, with the ultimate goal of informing and influencing policymakers, educators, the media, and students. The organization’s site is set to launch with a rollout of health care databases over the summer, accessible at www.stateoftheusa.org.

Government and Practitioners Panel: Challenges in the Recovery Process

Joe Schilling, a founding member of the National Vacant Properties Campaign and a professor in practice at Virginia Tech’s Alexandria Center, described the seminar’s practitioner discussants as “an expert panel of jugglers.” They must deal with the ever-fluid housing crisis, sometimes shrinking resources, and the need to stay ahead of the curve policy-wise.

Kamla Lewis, director of Neighborhood Revitalization for the City of Shaker Heights, Ohio, explained her community’s approach as having an unusual twist. Shaker Heights is an inner-ring suburb of Cleveland with a relatively affluent base of residents. The city’s response to the foreclosure crisis has been much less geared toward rehabbing and land banking, and much more honed to managing perceptions. “Our main focus is protecting property values, so we have enhanced curb appeal,” Lewis said. Flower baskets have been hung from light posts. Code enforcement efforts are strong, as are those for nuisance abatement. Despite ample data showing the possibility of a growing foreclosure problem, Shaker Heights is determined to “tell our side of the story,” Lewis said. “We do shameless promotion of the city.

Andrew French, director of the Redevelopment Authority of the County of Fayette, Pennsylvania, drew a very different picture of his community than did Lewis. Largely rural with 150,000 residents spread over 800 square miles, Fayette County had the third highest number of subprime mortgages as a share of all mortgages (38 percent) in the state, and one-third of all subprime mortgages in the county were noncurrent, French said. Given this situation, Fayette County is attacking on four fronts: purchasing and rehabilitating foreclosed homes; purchasing of foreclosed properties; demolition of blighted structures, and; development of newly constructed, affordable homes. It has identified trouble spots through a map informed by data from the state and HUD. An ongoing challenge is deciding when to bother with contacting absentee owners of vacant properties, especially when discovering true ownership is complicated in this time of mortgage securitization. “We could go after them, but it costs money,” French said.

Amy Sackman Odum, director of Community Development for the City of Lima, Ohio, noted that her city has become the unfortunate poster child for vacancy and abandonment. With its 38,000 residents, down from 60,000 in 1960, Lima has more homes than it needs, and about 1,200 now stand empty. The city’s puny demolition budget of $80,000 a year is no match, which is why Odum said she considers the NSP funds “a godsend.”  The largest challenge for mid-size city administrators like her is satisfying the myriad standards set by local, state, and federal governments for neighborhood revitalization. Each has its own formula. Meanwhile, Odum’s office is a staff of two. Lima has become known for its aggressive code enforcement program; now it hopes to elevate its status as a city that has successfully reinvented itself. “We look at this as a new land use opportunity, a community reinvention opportunity,” Odum said.

Laura Zinski, director of the Mon Valley Initiative in Pennsylvania, described herself as a necessarily hands-on manager. She is responsible for mowing vacant lots and trimming hedges in the Mon Valley, which encompasses 11 Community Development Corporations in Southwest Pennsylvania. The economic decline has been severe, with the region losing 60 percent of its population. Zinski said she takes heart that a place like Pittsburgh – which is also a low-growth, low-income area -- has been able to reinvent itself in the face of the foreclosure crisis. A major challenge for the Mon Valley Initiative is getting the region’s different municipalities to work together on redevelopment projects and long-range planning. “All of these different governmental overlays – I hope I live to see the day that that’s addressed,” Zinski said. Finding a way to overcome the inequitable income and growth patterns in the Mon Valley is another opportunity, she said.

Discussion

In the ensuing discussion moderated by Schilling, panelists and seminar participants covered a range of issues. LISC’s Chris Walker suggested that, in the interest of helping communities learn from each others’ experiences, receipt of NSP funds should be contingent on making data freely available. All panelists agreed that this would be desirable. Cleveland State’s Mikelbank noted that university students are a widely available and usually low cost resource, willing and able to lend a hand in data analysis as part of their scholarship. Fayette County’s French said that he would like to see a one-stop shop for small organizations and community development practitioners, where they could both take data and offer input on their own.