The Effect of Foreclosure on Vacancy at the Neighborhood Level
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After the U.S. foreclosure crisis and the larger financial crisis it precipitated hit the economy of the U.S. since 2006, people paid more attention to foreclosures than before. In 2010, about 2.9 million properties were reported receiving foreclosure filings, an increase of nearly 2 percent from 2009 and an increase of 23 percent from 2008. Figure 1 shows the trend of increased There are two interesting approaches to study causes of foreclosures. One states that properties foreclose because they are in worse condition than surrounding properties (Scott Frame, 2010). Many studies focus on the physical condition of properties and modeling the foreclosure behavior. The other approach focuses on the owner, rather than the physical characteristics of the properties. They think that minority homeowners are more likely to experience foreclosures than white borrowers (Ryan Allen, 2011). That may because of they are more likely to have less financial literacy (Kristopher Geradi, Lorenz Goette, Stephan Meier), or they are more likely to lose their jobs. Many empirical analyses have been done on the relationship between foreclosure rate and the characteristics of homeowners. Although it is important to investigate the causes and mechanics of foreclosures so that policy makers can learn from it and improve the current policy. However, it is also necessary to understand the consequences of residential foreclosures. The markedly increasing foreclosures made people lose their homes, but more than that, the ripple effects or externalities of foreclosures “impose a wide array of costs-both financial and nonfinancial- on a variety of individuals, organizations, and communities” (Immergluck, p.133). Foreclosures can cause “tremendous reduction in the value of nearby properties” (Frame, 2010), and lead to vacant or even abandoned properties, which hurt our communities. “Foreclosures of single-family homes have been viewed as a serious threat to neighborhood stability and community well-being” (Immergluck, 2006). Many studies have been analyzing the causes and consequences of foreclosures, and many of which focus on the externalities of foreclosures on individuals, nearby property values and communities. Foreclosure will cause high vacancy rate, which will make neighborhoods suffered from abandonment and high crime rate (Dan Immergluck, 2006). After being hit severely by the 2006 – 2008 subprime crises, we need to estimate the effect of foreclosure on our communities. This paper analyzes the effect of foreclosures on vacancy in the census tract level of 20-county metro Atlanta area by incorporating spillover effect of foreclosure into regression models. The basic model is estimated with neighborhood economic and demographic characteristics to measure the effect of foreclosure on vacancy rate. And then location variables are included to estimate the second model which measures if there is a significant difference of that effect from inner city than suburbs. At last but not least, to estimate how long it will take to transfer effect of foreclosures to neighborhood vacancy, variables measuring foreclosures in different time period are entering the model. The results suggest that controlling neighborhood economic and demographic characteristics, vacancy rate increases with foreclosure rate, but increases at a slower rate at higher foreclosure rate levels. One more foreclosure filings per mortgageable property2 will increase the vacancy rate by about 2.2%. And vacancy rate of census tracts located inside the ten core counties is 1.2 percent lower than census tracts located outside the ten core counties, which shows suburb neighborhoods have a higher vacancy than central city neighborhoods during the period of 2006 to 2010. Census tracts whose closest employment center is downtown or Buckhead have the highest vacancy rate, followed by census tracts closest to the airport employment center. Census tracts whose nearest employment center is Perimeter area have the lowest vacancy rate. And the subprime crisis in 2007 and 2008 do affect neighborhood vacancy, and its effect may last until 2009. This paper is organized into six sections. After the introduction, section two of the paper is literature review, which is organized by the two different theories of causes of foreclosures and three types of consequences of foreclosures. Based on the reviews of other studies, section three raises three research questions and includes establishments of three models to address those research questions, respectively. Section four introduces variables used in this study and how geography conversion is conducted. Section five includes results of three regression models and interpretation of variables. Finally, section six presents the conclusion of this paper, innovations and limitations of the methodology as well as possible further studies.