Cities and towns in old industrial regions across the US face a unique challenge - declining populations and a surplus surplus of housing. This excess supply acts to drive down prices, weakening the housing market. When prices fall under the ‘replacement cost’ of homes; the cost to build a similar home on a vacant lot, the value of maintaining a home is undermined and negative externalities are burdened by the community.
In a regular market owners tend to pay their taxes and maintain their properties because the value of their home is greater than it’s replacement cost so there remains an incentive to maintain the property. For example, if a mortgage loan is in default, the owner can usually sell the property and pay off the note. Even when a property falls into foreclosure, the lender makes sure the property is maintained and sold off as quickly as possible.
In weaker markets, where the value of a home is less than it’s replacement cost, properties may not sell at any price. Many owners have little incentive to pay their property taxes or maintain their properties, while lenders will often not even complete foreclosures to defray the loss on a defaulted mortgage.
Most neighborhoods are somewhere between these two extremes. Many neighborhoods, even in distressed cities, have some market demand, but properties may sit on the market for a long time, or may sell for less than replacement cost. Properties in good condition may sell, but those in need of major repair may languish, ultimately to be abandoned.
Land Banks have been created to help in bridging this market gap by focusing on the conversion of vacant, abandoned, and tax delinquent properties into productive use.
Land Banks make unused property useful again.
Land banks are government-created entities that are focused on the conversion of vacant, abandoned, and tax delinquent properties into productive use (in New York, land banks are non-profit corporations also governed as local public authorities).
How do Land Banks Create Value?
In essence, land banks acquire title to problem properties, eliminate the legal and financial barriers that render them unmarketable, and then transfer the property to new, responsible owners in a more predictable and deliberate manner consistent with community goals and priorities.
Most land banks have unique powers, granted by state enabling legislation, that enable them to undertake these activities more effectively and efficiently than other public or nonprofit entities. When thoughtfully executed, land banking can resolve some of the toughest barriers to returning land to productive use, helping to unlock the value of problem properties and convert them into assets for community revitalization.
What services do they offer?
- Acquire properties through various mechanisms
- Establish and uphold maintenance standards
- Collaborate on an intergovernmental and regional basis
- Hold property tax exempt
- Negotiate sales and dispose of property more flexibly than government
- Convey property according to local priorities