Minneapolis still battling against vacant properties -- even in housing shortage

Nearly 340 residential buildings sit empty and boarded across Minneapolis, despite a severe housing shortage and a steep vacant property fee that has raised $20 million for city services over the past decade.

The registry of vacant and boarded properties is less than half what it was at the height of the housing collapse. The nearly $7,000-per-year penalty on property owners has better funded the city staff tasked with monitoring vacant housing, but it hasn't eliminated a problem that officials say drags down values of neighboring homes and attracts crime.

"I put myself in the shoes of somebody next door to a property, and you look out the window and there's an empty building with boards on the window," said Noah Schuchman, director of regulatory services for Minneapolis. "You think about what that means to people's quality of life."

Minneapolis' vacant and boarded homes

Hundreds of houses sit vacant and boarded in Minneapolis, some for years, racking up $7,000-per-year fines for the owners.

The problem isn't specific to Minneapolis. St. Paul has 634 vacant properties, according to the city's data. The Twin Cities' situation is dwarfed by the street after street of boarded-up properties in cities like Baltimore, home to more than 16,000 vacant houses.

In the Twin Cities, home buyers in 2018 are facing the tightest market in decades. As of April, there were only 9,200 homes on the market in the 13-county metro, down from about 12,000 at the same last year and more than 34,000 in 2008, according to Minneapolis Area Association of Realtors data.

At the same time, foreclosures in Minneapolis have plummeted to some of the lowest in the nation, according to data from CoreLogic, which analyzes real estate trends. During the housing crisis, many foreclosed properties landed on the city's vacant registry.

These days, many of the homes left vacant sit in the Twin Cities' most desirable real estate neighborhoods and have increased exponentially in value in recent years. Instead of selling for profit, the owners pay thousands annually to the city as they wait for the right moment to renovate, tear down or sell.

"It's amazing that in this economy people still find it not punitive enough to have to pay [$6,948] a year," said former City Council Member Don Samuels, who helped lead the city's push to get tougher on these vacant property owners.

The reasons vary. Some say the high fee makes it harder to get a property back up to code. The city of Minneapolis itself owns 19 properties on the list. Twenty-five are administered by Hennepin County after tax foreclosures. Nine are in the name of Mahmood Khan, whose rental licenses have been stripped by the city for negligence.

For others, the fee is just the cost of doing business. Timothy Alexon, who owns scores of properties in north Minneapolis, said the annual fee pales in comparison to what he plans to make when his company eventually sells them.

"The houses are going up more than the [fee] is costing me," he said.

Minneapolis began taking a hard line against owners of vacant properties in 2006.

With an impending foreclosure crisis, Samuels led a push to reassess how much these properties were costing the city, and in turn raise the annual penalty from $400 to $2,000. Over the next few years, the city continued to approve higher fees, and in 2012 increased it to $6,948, where it remains today.

The push was an effort to recoup the money the city and neighborhoods were losing to these properties, but also to incentivize property owners to more quickly get the homes up to code, instead of waiting for the market to improve, said Samuels.

"It was a liability for neighborhoods and property owners," said Samuels. "It was a safety hazard in terms of squatters and police responses. And it was just a negligence that was allowed by us that actually encouraged the affordability of the neglect."

The massive increase drove many property owners to protest, and some sued the city. Today, the fee is considerably higher than St. Paul's $2,171 annual fee. In Chicago, which has about 31,000 vacant homes, the fee varies based on violations, but can be as low as $500.

But it worked, said Samuels. "It incentivized a lot of people, I'm telling you. It just wasn't worth it for people to hold onto them anymore."

Tailing the foreclosure crisis, the number of vacant properties peaked in 2008 at more 950. By 2014, it declined to 550.

Today, more than 100 vacant homes have been on the list since or before the foreclosure crisis. Two have been there since 2001.

Mary Lynch, whose property has been on the list since 2016, blames the city for it sitting vacant. Lynch refused to pay the fee, claiming it was too high. The city added the money owed to her tax bill, and earlier this year the duplex fell into tax forfeiture.

"I'm 66. Would they get off my back?" she said on a recent afternoon, sitting on the steps of the home in the Jordan neighborhood.

This neighborhood was once ground zero for foreclosures, but today the median home sale is $152,000, according to Trulia, a website for real estate listings. A duplex can fetch even more, which would make a considerable profit, even with what she'd have to pay to get it back.

Lynch said she can't afford to buy it back. For now, the yard is overgrown, and a faded wooden fence bows over into the neighboring lot. Teal paint peels off the wood siding in chunks, and a couple of planks are hanging loose. Schuchman said the city has tried to work with Lynch, who has more than 50 inspection violations, to get the property up to code.

"She's had years to come to the table and address these issues, and she hasn't," he said.

For other property owners, vacancy is part of the business model.

Alexon and his business partners buy homes in bulk from the bank, fix them up and sell or rent them for profit. He said they now own 85 properties and 130 units, almost entirely in north Minneapolis. They rehab the properties themselves to save money, which means sometimes a house may sit for years before they get to it.

Alexon said he often pays even more than $7,000 because the city fines him for garbage or missing boards.

"It's terrible," he said. "My question is, what are you doing with that $7,000?"

The answer, Schuchman said, is funding a team of city employees, such as inspectors or 911 responders, who monitor the properties more likely to attract problems like squatters, rodent infestations and criminal activity. The more than $20 million the city has raised from the fees over the years goes toward funding regulatory services in Minneapolis.

Schuchman said the city is in the process of reassessing the totality of these costs, which means the fee could soon go up, or down.

Staff writer Jim Buchta contributed to this report. Andy Mannix • 612-673-4036