Federal Reserve Governor Elizabeth A Duke, speaking at the NeighborWorks Training Institute in National Harbor, Maryland on Wednesday, told attendees that "there is no one-size-fits-all strategy for community stabilization."
Governor Duke said she had learned many lessons from her travels representing the Federal Reserve on the NeighborWorks America's board of directors and as chairperson of the Fed's Committee on Consumer and Community Affairs. The Federal Reserve is partnering with Neighborworks to reduce the impact of foreclosures in low-and moderate-income communities.
The first lesson she had learned, Governor Duke said, was that the downturn in housing had affected communities in many ways, but the effects were largely related to the underlying economies of each. Therefore, a stabilization strategy that might work in an industrial area with high unemployment might not work in a suburban area where employment is relatively stable.
In communities with weak underlying economies the downturn and the increased rate of foreclosures has hastened the cycle of increasing vacancies and decreasing property values. This then leads to declines in property tax and sales tax revenues, further deteriorating the communities.
Problems experienced by community organizations and homeowners are worst in the weak communities. "In the most devastated neighborhoods, some lenders do not even complete the foreclosure process or record the outcome of foreclosure sales because the cost of foreclosing exceeds the value of the property." There are indications, she said, that there are significant numbers of properties in such legal limbo.
Some communities have responded this abandonment by demolishing vacant properties and creating land banks. These "right sizing" strategies align housing supply with demand and create open spaces and parkland that increase community health and sustainability. She cited Detroit where community organizations have joined together in an urban farming initiative to reclaim abandoned properties and turn them into gardens to grow food. The resulting program created 169 community gardens utilized by 40 schools and 359 families to grow tons of food.
Communities with historically strong economies have also faced destabilization as foreclosures have increased. She said that cities such as Los Angeles, parts of Atlanta, and a number of cities in Florida which were until recently economically vibrant are now in distress because of high foreclosure rates which have ranged as high as 10 percent.
Vacant properties in some more prosperous markets are attracting investors who offer cash to banks to purchase foreclosed properties in bulk. This has crowded first-time homebuyers and community organizations out of the market and further destabilized neighborhoods.
Foreclosure scams are also taking root, particularly in stronger areas where people are more inclined to want to keep their homes. The Governor said that one housing counselor in Los Angeles told her that 80 percent of her clients had been victims of these scams.
Foreclosure mitigation, Governor Duke said, by necessity focuses on individual houses and mortgages, but it is clear that the key to stabilization is a more holistic approach to the problem. She stressed that housing alone is not sufficient to make a community economically resilient. The most successful programs are those that factor in the many elements that make a neighborhood a desirable place to live.
She cited several examples of programs in communities that have adopted a multi-faceted approach to community development, coupling several elements such as housing, schools, health care, job training, assistance to small businesses, leadership development access to reasonably priced food, transportation, childcare, or literacy training.
The most successful programs, she said, do not severe the connection to people once a job is found or other immediate needs are met. The programs are committed and connected to the community they serve and intend to continue to meet the needs of the neighborhood.
Ms. Duke pointed out that the one characteristic shared by the communities that have coped most successfully in the economic downturn is organizational capacity. In some cases this capacity has grown out of many years experience in the community, but many communities are facing the issues of vacancy, abandonment, and decay for the first time, and these communities need help to grow the human and financial capital required to address neighborhood decline. She said that the people attending the Training Institute demonstrate that there is a "strong appetite among community organizations for information, training, and leadership development."
Governor Duke said that the partnership between the Federal Reserve and NeighborWorks is just one aspect of the Federal Reserve's effort to stabilize neighborhoods. She said the Fed is committed to continuing to identify ways in which its strengths as a research institution and its network of Community Affairs outreach workers can be leveraged to help communities recover from high numbers of foreclosures and related economic impacts.
Her travels had taught her, Duke said, that a vibrant community is made up of more than houses. Neighborhoods need the right blend of housing, retail, and community services in order to remain desirable and resilient to economic cycles.
"The bottom line is that housing alone is not sufficient to create sustainable and economically resilient communities."