Neighborhood price externalities of foreclosure rehabilitation: an examination of the Neighborhood Stabilization Program

Abstract

The federally-funded, HUD-administered Neighborhood Stabilization Program (NSP) was enacted in the wake of the financial recession to mitigate the underlying adverse neighborhood effects associated with foreclosed properties. We examined the neighborhood price impacts of NSP-funded foreclosure rehabilitation undertaken by Habitat for Humanity in Dallas County, Texas using a difference-in-difference framework. Foreclosure rehabilitation projects in Dallas County produced an average 15% increase in neighborhood home prices that sold up to 30 months after the rehabilitated property sale and within 0.1 miles of the rehabilitated property. Foreclosure rehabilitation that involved significant exterior repairs was associated with the largest estimated effect sizes. Results suggest that NSP-funding in Dallas County effectively targeted homes that had the potential to have the most severe neighborhood impacts, and that rehabilitation was an effective means of reversing neighborhood price externalities associated with blighted foreclosed properties.JEL Classification: R31, G21, G28

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