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What Can Governments Do?

Dealing with the problem is very difficult for a local government both because of the large sums of money involved and because the roots of the problem lie outside the purview of the local government. The roots are clearly in national trends—credit market conditions, housing prices, and labor market conditions. If housing prices in one municipality decline, that will exert a downward pull on housing markets in nearby communities. If unemployment is up in one municipality, that will inevitably make for weaker labor markets in nearby communities, and so on.

Municipal governments can do some things to deal with the foreclosure and abandonment problem. A municipality may focus law enforcement efforts on the area to reduce arson and vandalism. Where properties are beyond saving, it may take steps to expedite their demolition. It might use community development funds to strengthen adjacent areas to keep the blight from spreading. Where the municipality comes into possession of abandoned properties, it might use some variation on Baltimore's urban homesteading program to put in owners who will maintain and improve the property. To the extent that mortgages are held by local banks, a municipal government might use its influence to encourage borrowers and lenders to try to work out terms that avoid foreclosure. But, in truth, the amount that a municipality can do is limited. Few if any municipalities have the funds necessary to save large numbers of homeowners from foreclosure even if they have the political will to do so.

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