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Foreclosures: clueless in Providence



Providence, Rhode Island Mayor David Cicilline last month, per Boston Globe coverage, "submitted an ordinance to the city council that would fine the owner 10 percent of a building's value if it remained vacant a year after receiving a warning from the city. The punitive fine is intended to upend the traditional economic equation by making it cheaper to sell a vacant building, even for a loss, than to hold it and pay the tax." Part of the idea behind the proposal, politically, is to reassure non-foreclosed homeowners who worry about the undoubtedly depressing effects of boarded-up vacancies in dicey Providence neighborhoods.

How obvious is the folly in a measure of this sort? Pretty obvious, you'd think. Assuming the threat works, its effect would be throw an unnaturally large volume of properties onto the market sooner rather than later. As the warning year ticks by and nears its end, something akin to panic selling might even result. The current bad slump in real estate prices might turn into an outright crash. And many of the remaining owner-occupiers in those neighborhoods could then start getting calls from their lenders demanding that they put up more money because their loans are now underwater with the further decline in observed prices.

If that happens, one hopes Mayor Cicilline is still on the scene to pay the political consequences.

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Rafael Mangual
Project Manager,
Legal Policy
rmangual@manhattan-institute.org

Katherine Lazarski
Manhattan Institute
klazarski@manhattan-institute.org

 

Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.