New Orleans Is Auctioning Off Vacant Lots Online
New Orleans is selling almost 1,800 properties on the Web to fatten its tax coffers and build on the momentum it's enjoying in the local real estate market.
The question is, who's going to show up for the online auction, and what are they going to do with the lots they buy?
On Friday, the city posted a list of 1,786 properties—90 percent of them vacant lots—that it plans to sell in the auction. Bidding on the properties, of which the city took control after the owners failed to pay property taxes, will start at $3,000 in most cases, plus the cost of trying to track down the most recent owner.
In many cases, bargain hunters can scope out the lots using Google Street View. If they like what they see, they can put up $650 to cover the costs of locating and notifying the current owner, a process the city says will take at least 90 days. Once that's complete, the city will start auctioning off the lots.
“The fundamental purpose is to put the properties back into commerce,” says Norman Foster, director of finance for New Orleans. “The city is doing well, people are coming back, and we want these properties generating taxes that serve as the foundation for how we pay for public services.”
The auction has attracted early interest from potential bidders, who plunked down research fees on about 300 properties within 48 hours of the initial posting.
Beyond simply raising tax revenue, the land sale may set the stage for construction to accommodate New Orleans’ growing population.
New Orleans, which lost more than 200,000 residents after hurricanes Katrina and Rita smashed the city in 2005, has been growing at a steady clip since then, straining its housing market. The cost of a fixer-upper increased by 40 percent in 2014, according to the New Orleans Metropolitan Association of Realtors. More than three-fifths of the city’s renters spend over 30 percent of their household income on rent.
“What you want to see is a diversity of housing options,” says Michael Hecht, chief executive of Greater New Orleans, which focuses on economic development in southeast Louisiana. “Right now, our particular need is for single- and multi-family rental.”
Still, the auction poses risks for buyer and seller.
The properties are called tax-adjudicated, a term of art for land that looked so unattractive to investors that the city couldn’t sell it the first time around. While the city is promising title insurance as part of the sale, there’s still a chance that a previous owner will eventually emerge to make a claim, or the land will prove difficult to develop or maintain. The auction postings include detailed records of the city’s attempts to reach title holders.
For New Orleans, the danger is that cheap land will attract investors who aren’t interested in building.
In other cities, land sales come with provisions intended to make sure that the property is sold to people who plan to improve it. Newark, N.J., held a Valentine’s Day sale last month, selling lots for $1,000 each to the first 100 sweethearts to line up. The sale had a catch: Buyers had to build on the vacant land within 18 months and then live on it for five years or face fines and repossession. In New Orleans, there are no such provisions.
“The weakness of this open-auction approach is there is no assurance that a purchaser who completes the acquisition will use it in a manner that's in the best interests of the city,” said Frank Alexander, a professor at Emory University School of Law in Atlanta.
It remains to be seen whether the online system makes the auction more accessible to less-sophisticated local buyers, greases the wheels for investors scooping up bargains from across the country, or both.
New Orleans has seen its share of the latter type of buyer in the past decade.
“After Katrina, people bought properties—and they’re not paying taxes, they’re just sitting on them,” said Alexandra Miller, deputy director of the Crescent City Community Land Trust, a nonprofit developer. In an op-ed this week, Miller suggested setting aside 15 percent of the property for affordable housing.
Foster said he’s agnostic on who buys the land, as long as the city can start collecting taxes on the it. He says 80 percent of the properties up for sale have been sitting on the city’s books for 10 years or more. Some of the lots are in neighborhoods whose home prices have improved over time.
“We think some of them will go for very high auction prices,” he said. “Some of them are in more difficult markets. It’s a mixed bag.”
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