Foreclosure Externalities and Vacant Property Registration Ordinances
Arnab Biswas, Chris Cunningham, Kristopher Gerardi, and Daniel Sexton
Working Paper 2019-20
This paper tests the eﬀectiveness of vacant property registration ordinances (VPROs) in reducing negative externalities from foreclosures. VPROs were widely adopted by local governments across the United States during the foreclosure crisis and facilitated the monitoring and enforcement of existing property maintenance laws. We implement a border discontinuity design combined with a triple-diﬀerence speciﬁcation to overcome policy endogeneity concerns, and we ﬁnd that the enactment of VPROs in Florida more than halved the negative externality from foreclosure. This ﬁnding is robust to a rich set of time-by-location ﬁxed eﬀects, limiting the sample to properties within 0.1 miles of a VPRO/non-VPRO border and to a number of other sample restrictions and falsiﬁcation exercises. The results suggest that an important driver of the negative price eﬀect of nearby foreclosures is a non-pecuniary externality where the failure to maintain or secure a property aﬀects one's neighbors.
JEL classification: H23, K25, R52, R28
Key words: mortgage default, foreclosure, externality, policy, vacancy
The authors thank Scott Frame, Tony Yezer, Paul Calem, Lauren Lambie-Hansen, Nikodem Szumilo, and seminar participants at the University of Cincinnati, Katholieke Universiteit Leuven, Cambridge University, University of Florida, and conference participants at the AREUEA National meeting in Washington DC, the Urban Economics Association meeting in Amsterdam, the Federal Reserve System meeting in Pittsburgh, and the National Tax Association meeting in Tampa Bay for valuable comments and suggestions. They also thank the Federal Reserve Bank of Atlanta Center for Housing and Policy for support and Dan Immergluck for collecting the ordinances. The views expressed here are those of the authors and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors' responsibility.
Please address questions regarding content to Arnab Biswas, University of Wisconsin-Stout, 440D Harvey Hall, 712 South Broadway Street, Menomonie, WI 54751, firstname.lastname@example.org; Chris Cunningham, Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street NE, Atlanta, GA 30309-4470, email@example.com; Kristopher Gerardi, Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street NE, Atlanta, GA 30309-4470, firstname.lastname@example.org; and Daniel Sexton, Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street NE, Atlanta, GA 30309-4470, email@example.com.
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