Latest / The Fiscal Policy Podcast with Fexingo: Government Budgets, Stimulus, and Public Spending / How Government Land Banks Turn Vacant Lots Into Revenue
Transcript
- Lucas: If you walk through almost any older American city, you'll see them — vacant lots, boarded-up houses, maybe a former gas station with weeds growing through the concrete. These properties aren't just eyesores. They're a fiscal drain. The city isn't collecting property tax on them, but it's still spending money on code enforcement, demolition, and police calls. Luna: Right, and the traditional solution has been tax foreclosure auctions. But those have a pretty bad track record — speculators buy properties sight unseen, don't pay the back taxes, and the cycle repeats. Lucas: Exactly. And that's where the land bank model comes in. The first modern land bank in the U.S. was created in Genesee County, Michigan — that's Flint — back in 2002. The idea was simple: instead of auctioning off tax-delinquent properties to the highest bidder, the county takes ownership and holds them until a responsible buyer or developer comes along. Luna: And if today's episode gives you a new lens on how cities can turn a liability into an asset, it's worth knowing that this show stays ad-free because of listener support. You can keep that going at buy me a coffee dot com slash fexingo. Lucas: Absolutely. It's a small way to make sure we can keep diving into these public finance stories that don't get much attention elsewhere. So back to land banks — Genesee County's Land Bank Authority has acquired over 10,000 properties since 2002. They've demolished about 3,000 blighted structures, sold or leased over 4,000 homes and lots, and returned about 2,000 properties to the tax roll. Luna: Wow, that's a lot of activity. And what's the fiscal impact? How much new tax revenue are we talking about? Lucas: The land bank itself estimates that the properties they've returned to productive use generate roughly $2 million a year in property taxes. That might not sound huge, but consider that those properties were previously generating zero. Over a decade, that's $20 million. And that doesn't include the avoided costs — demolition, fire suppression, police calls. One study found that every dollar spent on land bank operations in Genesee County generated about $4 in economic benefit. Luna: So it's not just about revenue. It's about stopping the bleed. But I imagine the model works differently depending on the market. In a city like Detroit, where you have tens of thousands of vacant lots, the math changes. Lucas: It does. Detroit actually created its own land bank in 2010, the Detroit Land Bank Authority. And it's been controversial. On one hand, it's moved fast — they've auctioned off over 20,000 properties. But critics say they've been too focused on volume, selling to investors who don't always maintain the properties. There's also the issue of pricing. In a rising market like Detroit in 2026, land bank properties that were once worthless are now appreciating fast. The question is whether the land bank is selling them at fair market value or leaving money on the table. Luna: That's a tension — is the land bank a public asset manager maximizing revenue for the city, or is it a community development tool? Those goals can conflict. Lucas: Right. And that's actually the central debate in public finance around land banks right now. The original Genesee County model was very focused on clearing blight and stabilizing neighborhoods, not on maximizing tax revenue. They sold homes for as little as $1 to qualified buyers who agreed to live in them. But as property values have recovered in places like Flint — albeit slowly — the land bank has started to shift. They now do more market-rate sales and even some small-scale commercial development. Luna: So it's a kind of counter-cyclical tool. When the market is weak, the land bank holds properties to prevent a fire sale. When the market strengthens, it sells into that demand. Lucas: Exactly. And that's the fiscal logic. The land bank can act as a price floor. Without it, during a housing bust, tax-foreclosed properties get dumped at auction for pennies on the dollar, driving down values for everyone. The land bank can absorb that supply and release it gradually. That's a form of market stabilization that benefits the whole property tax base. Luna: But it requires upfront capital. You need money to demolish, to clear titles, to hold properties while you wait for the market to turn. Where does that come from? Lucas: Good question. Genesee County's land bank was initially funded with a $2 million loan from the county general fund, plus grants from the state and federal government. They also get revenue from property sales, from fees — like a $100 administrative fee per auctioned property — and from interest on delinquent tax collections. In some states, land banks can also capture a portion of the property tax increment from redeveloped sites. It's a patchwork, but it works. Luna: And then you have the legal side. Land banks have special powers that regular property owners don't. They can clear titles more quickly, they can waive back taxes, they can bundle properties into redevelopment packages. Lucas: That's a key point. One of the biggest barriers to reusing vacant property is title problems — heirs' property, unclear ownership, liens that add up to more than the property is worth. Land banks have the statutory authority to quiet title through a streamlined process. In Michigan, the land bank can take ownership after just two years of tax delinquency, and then clear all liens except for federal tax liens and environmental cleanup obligations. Luna: That's a lot faster than the regular foreclosure process. I think in many states, tax foreclosure can take five years or more. Lucas: Right. And by the time it's done, the property is often in worse shape. So the land bank's speed is a fiscal advantage — it minimizes the period of non-productivity and deterioration. Now, there are critics who say this process is too harsh on homeowners who fall behind on taxes. And that's a real equity concern. Some land banks have responded by requiring a good-faith effort to contact the owner before taking the property. Luna: But in many cases, the owners have already abandoned the property. So it's a balance — between clearing blight and protecting property rights. Lucas: Exactly. And I want to bring up another case: Cleveland's Cuyahoga County Land Reutilization Corporation, which is the largest land bank in Ohio. They've been operating since 2009, and they've demolished over 5,000 structures. But they've also done something interesting — they've started to focus on 'land banking' in a literal sense: turning vacant lots into community gardens, green space, and even stormwater management. That's a different kind of public value, not directly tax revenue, but it reduces municipal costs for drainage and improves quality of life. Luna: So the land bank becomes a kind of real estate development arm of the city, but with a public mission. It's not just about selling lots to the highest bidder. Lucas: Right. And that's why the governance structure matters. Most land banks are separate legal entities — a public authority, not a city department. That gives them flexibility. They can hire staff at market rates, make decisions faster, and enter into contracts more easily. But it also means they're less accountable to voters. The board is often appointed by the county executive or city council, and there's sometimes tension over whether the land bank is pursuing the right priorities. Luna: I remember reading about the Detroit Land Bank Authority's board being criticized for being too developer-friendly. They were selling properties to investors who then rented them out at high prices, which contributed to gentrification pressures. Lucas: That's a real issue, especially in 2026, when many cities are seeing a post-pandemic rebound in housing demand. A land bank that sells too cheaply in a hot market is essentially giving away public assets. But if it prices too high, it may sit on inventory and not achieve its blight-removal mission. There's a sweet spot, and it's hard to find. Luna: So what's the latest in land bank policy? Any interesting developments in the last year or two? Lucas: A few things. First, there's a growing movement to link land banks to affordable housing. In 2024, New York State passed legislation allowing land banks to prioritize sales to community land trusts and nonprofit housing developers. That's a way to ensure that redeveloped properties stay affordable long-term. Second, some cities are using land banks to address the vacant commercial property problem, especially in downtown areas that haven't fully recovered from remote work shifts. Luna: That's interesting. Retail and office space is a different beast than residential. The redevelopment costs are higher, and the market is weaker. Lucas: Right. But land banks can aggregate multiple small lots into a larger development site — something individual buyers can't easily do. There's a project in Cleveland where the land bank assembled eight contiguous parcels and sold them to a developer for a mixed-use project that includes 40 affordable apartments and ground-floor retail. That kind of assembly would have been nearly impossible without the land bank's ability to acquire and hold the properties. Luna: So the land bank is acting as a kind of public sector developer, de-risking projects that the private sector wouldn't touch on its own. Lucas: Exactly. And there's a fiscal payoff down the line — property tax revenue from the new development, plus jobs and economic activity. The upfront cost is the land bank's holding costs, but those are relatively low compared to the potential return. Luna: One concern I hear is that land banks can become hoarders of property. If they hold too much land off the market, they can distort local land prices. Is that a real risk? Lucas: It can be, especially if the land bank isn't transparent about its inventory. But most land banks have a mandate to dispose of properties within a reasonable timeframe. The Genesee County land bank, for example, has a policy of listing properties for sale within 18 months of acquisition. They also have a 'side lot' program that sells adjacent vacant lots to homeowners for $100 — that puts land back into use quickly. Luna: That sounds like a good practice. I also wonder about the environmental side. Many vacant lots are brownfields — former industrial sites with contamination. Land banks sometimes inherit those liabilities. Lucas: That's a big challenge. Under federal law, land banks can be held liable for cleanup costs if they own a contaminated property. Some states have passed 'land bank liability protection' laws that exempt them from environmental cleanup obligations unless they caused the contamination. Without that protection, land banks are very reluctant to take on brownfield sites. In Michigan, the law provides that protection, which is one reason the Genesee County land bank has been able to redevelop former gas stations and industrial lots. Luna: So the legal framework matters enormously. It's not just about having a land bank — it's about what powers and protections the state gives it. Lucas: That's the takeaway, I think. Land banks are a powerful tool, but they're not a silver bullet. They work best when they have clear legal authority, stable funding, and a governance structure that balances community needs with fiscal discipline. In the current environment of high property values and tight city budgets, getting that balance right is more important than ever. Luna: And for listeners who want to dig deeper, the Center for Community Progress has a great toolkit on land bank best practices. We'll put a link in the show notes. Thanks for walking through this, Lucas. Lucas: Glad to. It's one of those public finance topics that doesn't get enough attention, but it affects the look and feel of entire cities.