WASHINGTON — Federal Reserve Board Gov. Elizabeth Duke on Friday said the glut of vacant properties still afflicting neighborhoods around the country is hindering a full recovery of the housing market.

Speaking in New York to a conference on distressed residential real estate, Duke said the government's failure to help neighborhoods trying to recover from high foreclosures has negative consequences, especially with signs the overall housing market is moving upward.

"In order to see the robust economic recovery we all want, we need to deal effectively with the large volume of vacant and distressed properties throughout the country," Duke said in her prepared remarks.

Research by the Federal Reserve Bank of Cleveland shows that a home which is foreclosed on, but not vacant, lowers property values around it by up to 3.9%. But combine that foreclosure with a tax delinquency and a vacancy, and it can lower neighboring property values by nearly two and half times that amount.

The lack of help for neighborhoods facing such property-value declines could reverse improvements in the overall housing market, Duke said.

"Some neighborhoods likely will not recover without the assistance of government, and in this time of scarce resources, it is critical that the public sector has the information and tools necessary to ensure that any assistance that is provided is effective and efficient," she said.

She acknowledged that fixing the problem comes with a price tag, but said the cost of doing nothing will be greater.

"Ultimately, a policy of neglect will be just as — or even more — costly than finding and implementing constructive solutions to the vacancy issue," said Duke.

Duke said there will not be a "one-size-fits-all solution," noting that some communities around the country with high vacancies each have "different characteristics and … different origins of their vacancy problems."

"Taking account of such differences will be important in crafting solutions to the problems caused by those vacancies," she said. "Certainly, different housing markets will recover in different ways and at different paces. In some areas, the private market will lead the way, while in others, government will have to use precious resources wisely to catalyze recovery."

Duke cited examples of vacancy problems facing different types of metropolitan areas to illustrate how issues can be addressed in different circumstances.

For example, in "housing boom" areas like Phoenix, which has relatively high median incomes and new housing stock, investors have begun to convert vacant homes into rental properties as home prices have rebounded.

While this may be an "encouraging trend, it is not a panacea," she warned, since there is the potential for aggressive investor activity to crowd out potential home buyers.

She also discussed an initiative in Baltimore — which has low housing demand and 16,000 vacant and abandoned properties — called "Vacants to Value." The program, Duke said, "uses data and targeted housing code enforcement to foster redevelopment in areas where there is modest private investment interest."

A third example are "traditional suburban" areas, like in Oklahoma City, where vacancies are not necessarily the cause of foreclosures. The city estimates that 8,000 urban properties have been vacant for more than three years and did not experience the housing boom and bust that hurt most of the country.

No matter the cause, vacancies can have a detrimental impact on communities, Duke said.

"Vacant homes can be more than just an eye sore; they can have substantial negative impacts on the surrounding community, impacts that are felt most acutely by the neighbors and communities that must cope with the dangers and costs of vacant buildings," she said.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.