Fixing up and reusing vacant buildings is difficult. But listing the barriers to building reuse depends on who you ask. If you are a developer, you may focus on the difficulty of acquiring vacant buildings. If you are an urban planner, you may talk about the lack of market demand.
These three questions are key to understanding how difficult it may be to fix up a vacant building (and even whether a property owner abandons a building in the first place):
- Where is the building located?
- What is the physical condition and characteristics of the building?
- What is the condition of the housing market in the area?
It can be difficult for any individual, whether they are a small developer or a handy homeowner, to fix up and reuse vacant buildings. If a building stands vacant for too long, the physical condition deteriorates. Wiring and plumbing might be stripped out and sold for scrap metal. If the roof begins to leak, the structure of the interior may suffer from rot and decay. A vacant building in bad condition is more expensive and difficult to fix up and reuse than a building in good condition.
But the location of the house also matters. It can be confusing when you see how developers easily overcome these barriers in one neighborhood but they seem insurmountable in another. In one neighborhood, vacant buildings are quickly purchased by small developers, rehabilitated, and sold at the asking price. In another neighborhood, a near-identical house sits and falls apart.
What is the difference? These neighborhoods have different housing markets. The housing market is the result of decisions by property owners, homeowners, developers, and tenants; along with the actions and policies of real estate agents, banks and insurance companies, local, state, and federal government, and more. All of these decisions and actions help determine how much it costs to buy a home or rent an apartment and how quickly tenants fill apartments or residents buy houses.
Three areas where we see these questions at work include:
- housing market typologies
- the market gap
- costs for rehabilitation or demolition
What is the housing market typology?
Baltimore City uses a housing market typology to help understand the condition of the local housing market at a block by block scale. The city’s goal is to match public investments to neighborhood housing market conditions. For example, city officials want to avoid spending public money on demolition in neighborhoods where there is potential for a small developer to reuse and rehabilitate vacant buildings. Baltimore created the city’s first map of housing market typologies in 2005 but has updated the analysis in 2008, 2011, and 2014 to keep up with changing market conditions.
The housing typology is created using a type of statistical analysis known as clustering or cluster analysis. The analysis incorporates several different market characteristics including:
- Vacant building notices
- Residential building permits (less than $10,000)
- Housing units per square mile (a measure of density)
- Sales price variation
- Foreclosure filings
- Commercial and industrial land use
- Vacant lots
- Owner occupancy
- Median sales price
Baltimore then used the analysis to map areas into three categories ranging from the strongest to weakest housing markets:
- Regional Choice
- Middle Market
Both “Middle Market” and “Stressed” areas are divided up into subcategories such as Middle Market Choice or Middle Market Stressed.
You can learn more about the housing market typologies from the Baltimore Department of Planning or learn more about housing conditions in your neighborhood with the BNIA-JFI Community Profiles. You can also find the housing market typology for any block or property using codeMap.
What is the market gap?
In neighborhoods with distressed housing markets, where there are few people with the interest and money to buy homes and the market values of buildings are low, developers (both private and nonprofit) face a big problem: the market gap.
The market gap is the difference between what a building costs to purchase and rehabilitate and and the rents (or purchase price) that most people can pay. The market gap is a barrier to the reuse of vacant buildings. The market gap is also a barrier to the construction or rehabilitation of affordable housing. Take a look at the Urban Institute’s interactive feature for a closer look at this topic: The cost of affordable housing: Does it pencil out?
Sometimes changing market conditions can surprise a developer with an unexpected gap. For example, in 2008, local nonprofit developer Jubilee Baltimore redeveloped three vacant buildings at 1125, 1127, and 1129 Hollins Street for a total of $858,000. Jubilee Baltimore hoped to sell the buildings into owner-occupied homes but the arrival of the subprime mortgage crisis made it difficult to find interested buyers. Adding to the problems was a 2009 assessment that put the total value of the three properties at just $330,000. In December 2014, the Maryland Department of Housing and Community Development forgave loans to Jubilee Baltimore and provided additional grant support to cover the gap on this project along with projects in the Penn North and Eutaw Place/Madison Avenue historic districts where the developer encountered similar challenges.
|Project||Development Cost||Assessed Value||Subsidy required||% Market Gap|
|1125, 1127, and 1129 Hollins Street (CL52501)||$858,000||$330,000||$528,000||62%|
In Hollins Market, public funding from the state filled the market gap and Jubilee Baltimore continues to maintain the properties as affordable rental housing. If funding is not available to fill the gap, a project may not happen at all.
What does it cost to tear down or fix up a vacant building?
While private developers focus on the market gap for a rehabilitation project, residents or city officials may have other concerns: the public safety risks of a building near collapse or the importance of preserving homeownership in a changing neighborhood. This table, based on estimates by Peter Duvall, Neighborhood Revitalization Program Manager for Strong City Baltimore, provides another way of looking at the costs associated with these different activities.
|Demolishing a single rowhouse||$15-20,000|
|Building a cinder block wall to support an adjoining rowhouse||$10,000|
|Relocating a tenant before demolition||$25,000|
|Acquiring a non-owner occupied rowhouse||$10,000|
|Relocating a homeowner before demolition||$175,000|
|Installing a new roof on a vacant rowhouse||$35,000 or more|
|Rehabilitating a distressed rowhouse||$100,000 or more|
|Subsidizing rehabilitation with a grant to a developer||$20-30,000|
To see how these activities work together, consider a hypothetical example of a block with eight rowhouses including:
- four city-owned vacant properties
- three privately-owned houses occupied by tenants
- one house occupied by a homeowner
Here are the options you could consider:
|Option||Description of costs||Total cost|
|Demolish the vacant buildings||Demolition could cost from $60,000 to $80,000 plus an additional $10,000 to $20,000 to rebuild party walls for the attached occupied buildings.||$70,000 to $100,000|
|Demolish the entire block||Demolition could cost $120,000 to $160,000 plus an additional $105,000 for acquiring houses and relocating tenants and another $175,000 to relocate the homeowner.||$400,000 to $440,000|
|Stabilize the vacant buildings||Installing new roofs on the four vacant buildings could cost $140,000 or more.||$140,000 or more|
|Redevelop the vacant buildings||Rehabilitating the four vacant buildings could cost $400,000 or more.||$400,000 or more|