Foreclosure Externalities and Vacant Property Registration Ordinances

Abstract

This paper tests the effectiveness of vacant property registration ordinances (VPROs) in reducing negative externalities from foreclosures. VPROs were widely adopted by local governments across the United States during the foreclosure crisis and facilitated the monitoring and enforcement of existing property maintenance laws. We implement a border discontinuity design combined with a tripledifference specification to overcome policy endogeneity concerns, and we find that the enactment of VPROs in Florida more than halved the negative externality from foreclosure. This finding is robust to a rich set of time-by-location fixed effects, limiting the sample to properties within 0.1 miles of a VPRO/non-VPRO border and to a number of other sample restrictions and falsification exercises. The results suggest that an important driver of the negative price effect of nearby foreclosures is a nonpecuniary externality where the failure to maintain or secure a property affects one's neighbors.

Real estate investors and the U.S. housing recovery

“…Previous studies have found that having more REO and vacant properties results in lower neighborhood property values, in part through a supply effect but also through a disamenity effect, because REO and vacancy are tied to worse property upkeep (Anenberg & Kung 2014; Biswas et al. forthcoming; Fisher et al. 2015; Gerardi et al.…”

“…These properties, which had often deteriorated during the foreclosure process and while in bank ownership, also increased neighborhood blight (Biswas et al. forthcoming; Gerardi et al. 2015; Lambie‐Hanson 2015).…”

After the Boom: Transitory and Legacy Effects of Foreclosures

“…Hence, our measure of recent foreclosures measures the flow of new foreclosures, and not necessarily the total stock of foreclosures at a specific moment in time. While our approach may undercount the stock of under-maintained foreclosed properties, as the impact of foreclosures may start earlier and last longer than 90 days during the crisis (see Gerardi et al 2015;Biswas et al 2021), our measure of recent foreclosures relates to the period after 2015, when the number of foreclosures is relatively few and back to pre-crisis levels. 4 In order to capture legacy effects, a longer time window before the transaction time is needed.…”

“…This literature has established that foreclosed properties sell at an average discount of approximately 25 percent (Campbell et al 2011;Chinloy et al 2017). As for neighboring properties, the literature has established that foreclosures reduce house prices by approximately 1 percent (Harding et al 2009(Harding et al , 2012Lin et al 2009;Campbell et al 2011;Towe and Lawley 2013;Anenberg and Kung 2014;Hartley 2014;Fisher et al 2015;Ihlanfeldt and Mayock 2016;Biswas et al 2021). However, do neighborhoods with a greater number of past foreclosures exhibit long lasting house price discounts?…”

“…This paper makes two contributions to the literature. First, we add to the foreclosure literature: much of the literature focuses predominantly on transitory price effects (Shuetz et al 2008;Campbell et al 2011;Anenberg and Kung 2014;Gerardi et al 2015;Biswas et al 2021). Only recently has research focus turned to the long-run consequences of the foreclosure crisis Piskorski and Seru (2021).…”