A federal program that has been in effect for nearly a year and has been allocated $3.9 billion from the national budget is struggling in the midst of a growing buyer's market. The Neighborhood Stabilization Act, passed by Congress last year, gives funding to states and districts in order for them to acquire abandoned properties and rehabilitate them into affordable housing units. But among the record-low prices that foreclosed properties are selling for in today's market, these states and localities are having a hard time competing with the private investors and homebuyers who also have their eyes on the houses.
The goal of the program is to prevent blight in the sections of the country hit hardest by the record number of foreclosures in the past year. By giving federal funds to states and cities, the government hopes to stimulate the real estate market in a way that is accessible to low-income residents, who may have experienced foreclosures or other financial struggles in the recent economy.
States and localities charged with the task of acquiring these properties to fix up and sell as affordable housing are struggling to get the foreclosures away from the banks, who now have about 750,000 of the 2.5 million foreclosed properties in their possession. An additional problem has arisen while trying to get these programs off the ground - properties with lower rents lead to a harder time to develop, especially since the Act requires that at least a quarter of those benefiting from the program must be considered very low-income.
The U.S. Department of Housing and Urban Development reports that there are 309 grantees in the program, including 55 states and territories and 254 selected local governments. 13.8% of the funds in the program have been used to buy and restore properties, with most success centered in major cities like Chicago and New York. $1.9 of the program's funding comes from February's federal stimulus package in recognition of how severe this concern of vacant neighborhoods had become.
Many areas have changed their plan in order to spend all their funding by the deadline of next fall. In addition to rehabilitating foreclosed homes, the Neighborhood Stabilization Program also allows for grantees to demolish vacant sites and rebuild affordable housing on already vacant sites. Most grantees have targeted neighborhoods they believe are in risk of blight in order to be more effective in revitalizing specific areas, but this has become increasingly difficult as negotiations with banks have been complex and many banks are more willing to work with private buyers.
Some area directors have tried to see if the Department of Housing and Urban Development can grant a portion of the funds to individual homebuyers who need financial help renovating the previously vacant properties they purchase, but the NSP guidelines specify that homebuyers cannot directly receive the allotted funds.
The program's creators and regional operators have faith that the funding will help reduce the amount of vacancy and urban decay caused by the recent housing market, but some have their doubts, noting that the difficulty of getting the money into the field will be a slower, perhaps less effective, process than originally thought.
