Foreclosure Externalities and Vacant Property Registration Ordinances

Biswas, Arnab; Cunningham, Chris; Gerardi, Kristopher; Sexton, Daniel

doi:10.29338/wp2019-20

Working Paper

Foreclosure Externalities and Vacant Property Registration Ordinances

Abstract: 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.

Keywords: foreclosures; policy; externality; vacancy; mortgage defaults; diversity;

JEL Classification: H23; K25; R28; R52;

https://doi.org/10.29338/wp2019-20