elizabeth a duke : addressing long - term vacant properties to support neighborhood stabilization speech by ms elizabeth a duke, member of the board of governors of the federal reserve system, at the federal reserve bank of new york, new york, 5 october 2012. * * * good afternoon. i want to thank the federal reserve bank of new york and the rockefeller institute for inviting me to participate in this important discussion of distressed residential real estate. the boom and bust in housing that is a hallmark of the recent economic cycle has resulted in an unprecedented volume of foreclosures that has, in turn, left us with an extraordinary level of vacant and distressed properties. even after the official end of the recession, home sales and house prices continued to decline for several years, and residential investment languished. 1 all of this has resulted in a slow recovery in housing, which is one of the primary reasons why our overall economic recovery has been so sluggish. in order to see the robust economic recovery we all want, we need to deal effectively with the large volume of vacant and distressed properties throughout the country. our housing crisis has many dimensions and will require a full spectrum of policy actions to restore health to the housing market, our economy, and most importantly, to neighborhoods and communities across the country. the federal reserve system has been active in studying various aspects of the crisis, bringing together community leaders and market participants to share experiences in forums such as this, and using data to identify areas of particular need. i have spoken in the past about credit availability, preventing foreclosures, converting foreclosed properties to rental properties, and strategies for neighborhood stabilization. today, i would like to focus on the problems posed by an elevated level of vacant properties. i plan to draw on research conducted by federal reserve board staff and would especially like to thank raven molloy, an economist in our macroeconomic analysis group, for her work in this area. as i will discuss later in my remarks, the effective use of data is a common theme among success stories in neighborhood stabilization. in the hope that the census tract data referenced in this speech might be helpful to others working to address vacancy problems, i plan to post our data on the federal reserve website along with this speech. 2 level and distribution of vacant housing since the beginning of this year, there have been signs of improvement in aggregate housing market conditions nationally. sales of new and existing homes have risen and home prices have turned upward. so far this year, house prices

capital is to be used from 2020 or 2025. one drawback of some of these funds ’ structures, such as the french fund, is that they are not financed through increased government saving, but in reality by borrowing. fund - based pensions the norwegian national insurance scheme is a pay - as - you - go system, where annual payments are financed by current tax revenues. the pension scheme for public employees is not fund - based either. an international comparison shows that pension obligations in norway are fund - based to a very limited extent. some other countries base their pension obligations on funds to a far greater extent. this applies for example to canada, the netherlands, the uk and the us. in these countries, fund - based occupational pension schemes account for a large portion of the pension system, in the public as well as the private sector. if we include the petroleum fund and the national insurance fund at current market values, the picture changes, and funds in norway are then higher than the oecd average. but even today, the level in norway is below that of the netherlands in 2003. long - term investment strategy the petroleum fund employs a very careful investment strategy, with broad diversification. large pension funds in other countries employ the same kind of strategy. like the petroleum fund, these funds are intended to secure future payment flows. the consequences of large losses over time would be severe. for pure pension funds, this would mean they would not be able to honour their obligations to their members. for the petroleum fund, it would mean that the state would have to find other ways to finance the costs of the age wave that we know is approaching. because of the prudence requirement, return requirements cannot be the same as for many private investors. it is important to remember that for every successful investor that achieves high returns, there are many other investors that have the same level of ambition and risk willingness, but a far 6 / 8 poorer track record and a history of insolvencies. the petroleum fund cannot run the risk of joining the worst group. some large institutional investors have tried to copy successful private investors. one example is kuwait, which for a period chose large strategic investments instead of diversifying more evenly. to our knowledge, the results were not positive. another example is the oil fund in the canadian state of alberta, where investments up to the end of the 1990s were partly influenced by political considerations and a large share of the capital was invested in local businesses. this resulted in far lower