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February 26, 2014

Report: Estimating the Effect of Demolishing Distressed Structures

Estimating the Effect of Demolishing Distressed Structures in Cleveland, OH, 2009-2013: Impacts on Real Estate Equity and Mortgage-foreclosure

The Thriving Communities Institute has recently released the report "Estimating the Effect of Demolishing Distressed Structures in Cleveland, OH, 2009-2013: Impacts on Real Estate Equity and Mortgage-foreclosure" produced by Griswold Consulting Group and written by Nigel G. Griswold, Benjamin Calnin, Michael Schramm, Luc Anselin, and Paul Boehnlein. The report uses empirical data derived from the Center on Urban Poverty and Community Development's NEO CANDO (Northeast Ohio Community And Neighborhood Data for Organizing) system to econometrically model impacts distressed residential structures and vacant lots have on nearby property values. The report cites NEO CANDO as making the research possible by providing highly sophisticated parcel-level data.

The report was the focus of the opening presentation of the 2014 Cleveland City Council Community Development Block Grant Hearings on February 11, 2014.

This two-­part empirical analysis focuses on the effect that residential demolition has had on real estate equity and mortgage-­foreclosure rates in the Cleveland, Ohio area between 2009 and 2013. Part 1 of the analysis uses a spatially dynamic economic model of land use change to estimate varying levels of financial impact from demolition activity on real estate equity across four housing submarkets. Just over 6,000 demolitions were completed over the study period, costing roughly $56.3 million. Findings estimate total demolition benefits at $78.9 million, suggesting a $22.6 million net benefit attributed to demolition activity. Benefits from demolition activity were shown to accrue primarily in high and moderately functioning markets. Conversely, findings suggest that little real estate equity return is available from demolition activity in weak real estate markets.

Part 2 of the analysis uses a pattern-­?based approach to investigate the relationship between demolition activity and mortgage-foreclosure rates. Findings show a clear trend of decreasing mortgage-­foreclosure rates in areas where demolition intervention activity took place. This is true for the study area as a whole as well as in low, moderate and high distress neighborhoods.

Michael Schramm, one of the co-authors of the report, is also a research associate of the Poverty Center. Center Co-Director Claudia Coulton and other Center staff gave insight during the research for this analysis. The report cited the Poverty Center's "Pathways to Foreclosure: A Longitudinal Study of Mortgage Loans, Cleveland and Cuyahoga County, 2005-2008" and also called NEO CANDO "one of the most highly sophisticated spatial data systems on the planet and continues to offer researchers a treasure trove of resources."

The Center on Urban Poverty and Community Development is a research center at the Jack, Joseph and Morton Mandel School of Applied Social Sciences, a graduate school of social work at Case Western Reserve University.