The Impact of Vacant, Tax-Delinquent, and Foreclosed Property on Sales Prices of Neighboring Homes
|WP 11-23||Revisions: WP 11-23R1 | WP 11-23R2|
In this empirical analysis, we estimate the impact of vacancy, neglect associated with property-tax delinquency, and foreclosures on the value of neighboring homes using parcel-level observations. Numerous studies have estimated the impact of foreclosures on neighboring properties, and these papers theorize that the foreclosure impact works partially through creating vacant and neglected homes. To our knowledge, this is only the second attempt to estimate the impact of vacancy itself and the first to estimate the impact of tax-delinquent properties on neighboring home sales. We link vacancy observations from Postal Service data with property-tax delinquency and sales data from Cuyahoga County (the county encompassing Cleveland, Ohio). We estimate hedonic price models with corrections for spatial autocorrelation. We find that an additional property within 500 feet that is vacant, delinquent, or both reduces the home’s selling price by at least 1.3 percent. In low-poverty areas, tax-current foreclosed homes have large negative impacts of 4.6 percent. In high-poverty areas, we observe positive correlations of sale prices with tax-current foreclosures and negative correlations with tax-delinquent foreclosures. This may reflect selective foreclosing on better maintained properties or better maintenance by tax-paying foreclosure auction winners. The marginal medium-poverty census tracts display the largest negative responses to vacancy and delinquency in nearby nonforeclosed homes.
*Originally posted in September 2011. First revision December 2011.
JEL Codes: R31, R32, R38, R58, C31, R23
Keywords: foreclosure, vacancy, abandonment, residential property, home prices, spatial modeling, low-value property, distressed property
Suggested citation: Whitaker, Stephan, and Thomas J. Fitzpatrick, 2011. “The Impact of Vacant, Tax-Delinquent, and Foreclosed Property on Sales Prices of Neighboring Homes” Federal Reserve Bank of Cleveland, Working Paper no. 11-23.