In an effort to reduce blight, control crime and boost property values, numerous U.S. cities and counties have plans in the works to raze entire neighborhoods of vacant and often dilapidated real estate owned (REO) properties. However, funding for some of the projects is reportedly coming from an unlikely source: the Hardest Hit Fund of the Troubled Asset Relief Program (TARP), which was originally intended to bail out homeowners going through foreclosure.
Projects to tear down ramshackle, vacant homes by the thousands are currently under way in Detroit and Cleveland, as well as smaller suburban communities such as Flint, Grand Rapids, Pontiac and Saginaw, Mich., Bloomberg News reports.
In Flint, for example, officials have begun tearing down about 1,500 dilapidated homes in an attempt to lift the housing market. Funding for the teardown work is coming in part from the Hardest Hit Fund – a $7.6 billion fund that was originally intended to help troubled property owners avoid foreclosure and keep their homes.
Because not all of the money was used – due to the fact that foreclosures have fallen precipitously in the past several years to just a fraction of what they were in 2010 – municipalities are now tapping into the unspent $3.2 billion to improve blighted neighborhoods, according to the report.
In Detroit alone, up to 70,000 homes, or about 19% of the total, may need to be torn down, according to the report.
Still, even if these municipalities succeed in rehabilitating entire neighborhoods, there is a question as to whether the housing market will ever return to pre-crisis levels in those areas. As the Bloomberg News article points out, the population has declined considerably in places like Flint, which used to be home to tens of thousands of auto workers and their families. The lack of a manufacturing base has created a situation where there are far more houses than people to live in them.
The situation is similar in Cleveland, where the population has been declining for years, as people move out to find better job markets. Many of those who were in foreclosure simply packed up and left their houses. Many of these homes have remained empty, even after the banks repossessed them. As a result, the condition of many of these homes has deteriorated to the point where they are no longer salvageable.
Detroit, which filed for municipal bankruptcy last year, is getting about $52 million from the Hardest Hit Fund to demolish houses in stronger markets where the land could be redeveloped, according to the report. Meanwhile, Flint, Grand Rapids, Pontiac and Saginaw will get a combined $48 million.
Genesee County, where Flint is located, plans to flatten 1,600 homes using the financing, and another 3,500 should be destroyed, Douglas Weiland, executive director of the Genesee County Land Bank Authority, told Bloomberg News.
Meanwhile, Ohio will use another $60 million from the fund to demolish structures in "tipping point neighborhoods," where homeowners remain and removing blight can have a stabilizing effect, according to the report.
Indiana has gained approval to use $75 million of Hardest Hit money for redevelopment as well, according to the report.
Although the Hardest Hit Fund wasn't originally intended to fund teardowns on a mass scale, most state and county officials say it is a good use of the remaining money. With foreclosures now rapidly dropping to pre-crisis levels, they say rebuilding blighted neighborhoods is a good way to boost property values – and, in turn, local property taxes.
For more, check out the Bloomberg News report.