54 Pages Posted: 1 Oct 2011 Last revised: 19 Dec 2011
Date Written: December 2011
In this empirical analysis, we estimate the impact of vacancy, neglect associated with material 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 fi rst to estimate the impact of tax-delinquent properties on neighboring home sales. We link vacancy observations from Postal Service data with propertytax delinquency and sales data from Cuyahoga County (the county encompassing Cleveland, Ohio). We estimate hedonic price models with corrections for spatial auto correlation. We find that an additional property within 500 feet that is vacant, delinquent or both reduces the home’s selling price by at least 1.4 percent. The impacts of foreclosed homes are revealed when the data are disaggregated by the poverty level or vacancy level of the census tract. In low-poverty areas, tax-current foreclosed homes (vacant or occupied) have large negative impacts of approximately 4 percent. In models estimated on high-poverty and high-vacancy subsets of the data, we observe positive correlations of sale prices with tax-current foreclosures and negative correlations with tax-delinquent foreclosures. These results are only marginally significant, but they may reflect selective foreclosing on better-maintained properties or better maintenance by tax-paying foreclosure auction winners. The marginal medium-poverty and medium-vacancy census tracts display the largest negative responses to vacancy and delinquency in nearby nonforeclosed homes. These results suggest that federal housing policy’s expansionary focus may be problematic in less robust housing markets by contributing to the oversupply of housing.
Keywords: foreclosure, vacancy, abandonment, residential property, home prices, spatial modeling, low-value property, distressed property
JEL Classification: R31, R32, R38, R58, C31, R23
Suggested Citation: Suggested Citation
Whitaker, Stephan and Fitzpatrick, Thomas James, The Impact of Vacant, Tax-Delinquent, and Foreclosed Property on Sales Prices of Neighboring Homes (December 2011). FRB of Cleveland Working Paper No. 11-23. Available at SSRN: https://ssrn.com/abstract=1935510