February 3, 2010 Forum

Getting Real about Real Estate and Community Development Finance

Recent years have witnessed foreclosures, mortgage meltdowns and related financial turmoil that have undermined community development.  But according to Dan Immergluck, an associate professor in Georgia Tech’s School of City and Regional Planning, the crisis is slowing for a couple of reasons—(1) federal support of the mortgage markets and (2) loan modifications putting the brakes on foreclosures, he said. 

Immergluck, whose book Foreclosed: High-Risk Lending, Deregulation and the Undermining of America’s Mortgage Market was published last year by Cornell University Press, spoke at the February 2010 innovation forum presented by Georgia Tech at its Technology Square campus in Midtown Atlanta.  The forum’s theme echoed that of the January event—surviving the recession. 

Small banks, he noted, contributed to excessive lending, but demographics did not support the ongoing development.  Jobs come first, then housing, he said, adding that Atlanta did the reverse.  The metro area needs more housing options, including high-quality apartments, according to Immergluck.

An emerging concern, he said, is increased concentrations of low-cost rental units resulting from geographic concentration of foreclosures and low-quality rental properties combined with families plagued by poor credit and distressed finances who can only afford to reside in afflicted neighborhoods.  In effect, he suggested, this creates or expands zones of poverty.

Commercial real estate is experiencing high vacancies, plagued as it is with lower values and tighter credit standards.  Many properties have short-term loans, which can mean refinancing problems, said Immergluck.

Acquisition, construction and development (ADC) loans were 32 percent of metro Atlanta banks’ assets in 2007 compared with 12 percent in other metro areas, and the ADC delinquency rate for metro Atlanta was 22 percent in 2009.  Twenty-five banks failed in metro Atlanta, he said.

One positive thing, he observed, is that community development financial institutions (CDFIs)–typically nonprofit, mission-driven lenders–are seeing increased demand, as high as 57 percent in the third quarter of 2009.  The South counts many CDFIs, but they traditionally have had low monetary supplies; federal stimulus dollars are helping with that.

Concerning the future of mortgage markets, Immergluck said that some observers have suggested getting rid of Fannie Mae and Freddie Mac while others take a less drastic stance and feel the two giant lenders should perhaps be folded into the Federal Housing Administration or at least be prevented from lobbying.  Other issues include whether lenders can form consortiums and whether the regulatory structure should be changed.  Housing policy needs more discussion, he said, but we require better information to do so.

The Innovations in Economic Development Forum, offered each fall and spring semester, brings together faculty, other researchers, students, economic developers, and policy-makers to discuss leading-edge ideas and practices in economic development and innovation policy.  Presented by the program in Science, Technology and Innovation Policy (STIP), a joint initiative of Georgia Tech’s Enterprise Innovation Institute and School of Public Policy, the forum is co-sponsored by the Georgia Economic Developers Association and the Federal Reserve Bank of Atlanta.  Sessions are free and open to the public.  For more information, call Robert Lann at 404.894.3475  or e-mail ude.hcetag.etavonninull@stnevesrpc.

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