Learning from Baltimore’s Vacants to Value: Part III

One can learn a lot about tackling abandoned properties from Baltimore’s Vacants to Value. However successful it’s been, at getting abandoned properties back into use, though, there are real risks in overselling that achievement. The core element of that program, simply stated, is an effective means of getting developers to restore vacant properties without public subsidy under certain conditions. That points out the two key limitations on what it can accomplish:

First, it doesn’t work everywhere. And second, while restoring vacant properties to use is never a bad thing, it may not be the key thing in terms of what’s driving a troubled neighborhood’s downward trajectory. Those limitations are inherent to the program. A third is the extent to which V2V is creating rental units as houses are rehabbed and put back to use, rather than homeownership opportunities.

As we studied the program, we found a disturbing pattern in a number of the neighborhoods where V2V was most active. Yes, by 2016, a lot of the properties that had been vacant in 2010 – when the program began – had been rehabilitated and put back into use. But, the total number of vacant properties in 2016 in those neighborhoods was greater than in 2010! In other words, more new properties had been abandoned between 2010 and 2016 than had been rehabbed.

That’s not a criticism of the strategy as such; indeed, if there had been no V2V program, odds are that the number of vacant properties in those neighborhoods would be even larger. What it says, though, is that the driving problems in those neighborhoods are not the vacant properties. The vacant properties are a symptom, not a cause. What the cause (or causes) might be could be different in different areas. It could be middle-class flight, crime, gangs, loss of jobs, or all of the above.

Lesson number one, then, is that reusing vacant properties may be – and often is – an important part of stabilizing a troubled neighborhood. It is not in itself a neighborhood stabilization strategy.

One reason, I suspect, why getting these properties back into use did not have more impact than it did was because the overwhelming majority were not sold to homebuyers, but either rented out, or resold to investors to rent out.

Unfortunately, there’s a good reason for this. Many of Baltimore’s troubled neighborhoods have sales prices that are too low to cover the cost of rehab – in some cases as low as $20K to $30K – but have rents that are high enough to enable a developer to put $60K to $90K into a house, and make a healthy return on their investment. Baltimore has been offering a $10K incentive for homebuyers, but that doesn’t fill the gap. We found that for most developers and buyers, on the other hand, the incentive was icing on the cake, not the cake itself.

Providing good, rehabbed houses for rent is not a bad thing. It enables many lower-income families, particularly those who have Section 8 vouchers, to get high quality housing, better than most of what’s available to them elsewhere. It does little, though, to help restore the social glue that homeownership represented for many of these neighborhoods, most of which are steadily losing homeowners. If more V2V units could be sold to homebuyers, that might make a difference in terms of addressing these neighborhood’s more deeply-rooted challenges. In the end, though, Baltimore needs a comprehensive approach to its struggling middle market neighborhoods. V2V is not a substitute for such an approach.

 
The second issue is even more troubling, because of its larger policy implications. V2V doesn’t work everywhere. More specifically, it only works where the market works. That means that developers need to either be able to recover their costs by selling the rehabilitated house; or not only be able to get a rent that provides a respectable annual return, but also have enough confidence in the neighborhood to feel that they can recoup their capital investment over time. Large parts of Baltimore – as in other older cities – do not meet those conditions. In those neighborhoods, V2V does not work, because developers have no motivation to invest their own money in rehabbing vacant houses.

The problem is first, that those are the neighborhoods where the people are poorest and most in need of decent, good-quality housing; and second, that those are the neighborhoods which contain the largest number of vacant properties. While the City of Baltimore uses state and local funds to demolish vacant houses in these neighborhoods, many people working and living in these neighborhoods do not see this as even remotely comparable to rehabbing houses, and feel increasingly frustrated as they see houses been rehabbed in other parts of the city, but not in their neighborhoods.

This is both a social and an economic issue. The City cannot force developers to rehab houses where they don’t see themselves getting a return on their investment, and does not have the money to bribe them to do so. The City simply does not have the tools to restore neighborhoods, where for decades people have been voting with their feet by leaving, to their one-time vitality. At the same time, the City has an obligation to the people who live in those neighborhoods to provide them with both a decent quality of life and greater access to job and other personal opportunities. If the strategies that comprise V2V do not work in those neighborhoods, the City needs to be actively thinking through what it can do.

As America’s older cities, of which Baltimore is a prime example, are seeing revival, they are becoming increasing polarized between areas that are thriving and seeing millions of dollars in new investment and those that are withering away, between the affluent and the poor, and between white and Black, something Richard Florida has aptly called “the new urban crisis.” While V2V is a sound, creative strategy to address a specific problem, it does not and cannot address this larger issue. The danger is that by being successful in what it can do, in the absence of equally creative strategies to address what it cannot do, it risks being seen as part of the problem rather than the solution.