In her speech, Duke explored solutions such as reducing the obstacles for existing owners to refinance mortgages at lower rates and converting real estate owned (REO) assets into rental properties, while acknowledging that the REO-to-rental solution likely will not work in all areas. "Low-value properties," in particular, often carry a repair or demolition cost that exceeds market value, demanding a more creative approach—land banks.
What is a land bank?
According to the U.S. Department of Housing and Urban Development 
(HUD), a land bank is a "governmental or nongovernmental nonprofit entity established, at least in part, to assemble, temporarily manage, and dispose of vacant land for the purpose of stabilizing neighborhoods and encouraging re-use or redevelopment of urban property." In recent years, HUD's Neighborhood Stabilization Program has provided federal funding for local land banks through the Housing and Economic Recovery Act of 2008 and two subsequent bills in 2009 and 2010, respectively. In her speech, Duke said, "Because it likely will take several years for the overhang of vacant homes to be sold, such a strategy would help some communities deal with the short-term crisis and then ultimately allow for the disposition of properties in a manner suitable to local market conditions in the longer term." Emory University School of Law professor Frank Alexander agrees, writing in 2009, "Land banking's ultimate objective is to provide a multijurisdictional response to inefficient land markets and to reallocate land for inclusionary, sustainable purposes...The need is greater than ever, and the opportunity is here." Participating in an Atlanta Fed podcast, Alexander made it clear: "Land banking...is best used when the market itself cannot reabsorb the properties. Whenever the market, the private market, can reabsorb the inventory, I think it's best to let the market do that." With more than 4 million residential loans currently seriously delinquent or in foreclosure, many communities will continue to face housing inventories that cannot readily be absorbed by the market.
Southeast land banks
Several jurisdictions across the Southeast already have established land banks that stand ready to address the REO problem. In the Atlanta area, the Fulton County/City of Atlanta Land Bank Authority has helped return tax-delinquent and non-revenue-producing properties to productive states over the past 14 years. The Valdosta-Lowndes County Land Bank Authority in south Georgia successfully acquired several parcels and held them tax-free until the local Habitat for Humanity was ready to develop the Fellowship Place subdivision, an award-winning affordable housing project. Alexander noted recently that officials in Tuscaloosa and Joplin, Alabama, also are considering how a land bank may help their cities recover from the tornadoes that struck last April.
Challenges and opportunities
Yet, the land bank solution poses several challenges, most notably inadequate and unsustainable funding sources. In the current political and economic environment, there are no assurances that the Neighborhood Stabilization Program, or similar efforts, will receive additional federal funding. Still, Governor Duke admitted that "more funding and technical assistance [will] be needed to scale these efforts up to an adequate level."
Alexander, who has conducted extensive research on this subject, commended Governor Duke for identifying the most critical issues facing land banks. He believes that a "dramatic growth in understanding" about land banks has created momentum for the tool to become an enduring policy solution. More importantly, nearly every jurisdiction across the country now has more vacant property inventory than before the recession. Such a common, urgent problem might turn land banks into an appealing long-term tool for helping the housing market recover.
By Kevin Mahoney, research assistant, Federal Reserve Bank of Atlanta's Community and Economic Development Department