Land Banking

Property tax delinquency increased dramatically during the great recession in many cities. In 2011, for example, the percentage of property taxes that went unpaid by the end of the year (same-year delinquency rate) was 20.2% in Cleveland, 20.1% in Detroit, 9.9% in St. Louis, and 9.0% in Philadelphia. By comparison, the 2006 same-year delinquency rate was just 7.6% in Detroit.

Yet tax foreclosure is problematic for local governments. Tax foreclosure is the process whereby local governments force the collection of delinquent property taxes through the transfer of ownership.

Tax foreclosure policies vary by state and sometimes within a state. Lax tax foreclosure policies that permit lengthy delinquency such as Philadelphia are particularly problematic. In a recent study by Pew Charitable Trusts, the author found that the city of Philadelphia was owed $515.4 million in delinquent taxes on 102,789 properties. It was estimated that $360 million would never be collected.

The problem is not unique to Philadelphia. Whenever delinquent property balances exceed the market value of the property, the property is financially abandoned. At that point, it is highly unlikely that the delinquent property owner will pay the taxes owed or that a second party would be willing to purchase the property and repay the outstanding tax balance.

Land banks have developed as a policy tool local governments can use to deal with vacant and abandoned properties, such as tax foreclosed properties. The Center for Community Progress, a nonprofit organization that helps communities deal with blighted and vacant property, estimates that there are approximately 120 land bank programs in 24 states. The number has grown dramatically since 2005, when there were only a handful of land banking programs nationwide. The most recent additions include Missouri, Nebraska, New York, and Pennsylvania.

Land banks allow local governments to acquire and develop vacant and abandon properties. The goal of a land bank is to return problem properties back to productive use. Their capacity to do that depends on state and local statute, land bank governance, inventory, and market conditions.

For example, since being formed in 2004, the Genesee County (Michigan) Land Bank, has taken responsibility for more than 10,000 properties. Of these properties, more than 1,000 abandoned houses were demolished, more than 1,000 were conveyed as “side-lots” to next-door homeowners, and hundreds of homes were rehabilitated.

Disposition policies for rehabilitated properties vary by location. The primary focus of the Louisville and Jefferson County (Kentucky) Land Bank is returning properties to residential use. Other land banks give priority to developers interested in providing low-income housing. The Atlanta Land Bank gives first priority to non-profit entities that rehabilitate properties for low-income housing.

The most comprehensive examination of Land Banks and Land Banking to date was conducted by Frank S. Alexander at Emory School of Law. Although the study does not evaluate the programs currently in use, the study does discuss the challenges and opportunities posed by land banks. Challenges include lack of awareness, disputed titles, and inadequate code enforcement. Opportunities include removal of blighted properties, community involvement, and new development.

Land banks and builders share a common goal of returning property to productive use. Land banks provide builders with a source of properties that were previously undesirable due to disputed titles or delinquent taxes. In turn, builders can provide the labor, capital, and knowledge necessary to successfully redevelop the properties. As the use of land banks grows, builders are encouraged to reach out to local government officials to help design and implement a more effective program.

3 Responses to Land Banking

  1. Percy Brooks says:

    More education is needed by homebuilders about the opportunities to build on urban infill vacant lots across the country. This is an multi-billion dollar industry where the housing needs of affordable housing is not being met in the marketplace across the country.

  2. egelandgroup says:

    […] View this original post on the NAHB blog, Eye on Housing. […]

  3. […] NAHB economists discussed land banking and new mortgage application data for new homes. Lastly, data for the first quarter of 2014 revealed […]

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