|A map showing percent change in residential property assessed values in Detroit, from 2018 to 2019. Source: City of Detroit via crainsdetroit.com
Detroit may have turned a pretty significant corner. It may mean little to other cities around the nation, but this is big news for the Motor City.
According to the City of Detroit, and reported on by various sources, assessed values of property are rapidly increasing and reversing decades of falling property value. The city’s assessor’s office showed that residential property value increased by 12 percent in 2018, and commercial property value increased by an astounding 35 percent as well. Residential property values had been in decline for the last 17 years before showing this upsurge. Commercial property, on the strength of the city’s downtown revitalization, showed an increase last year.
Perhaps most importantly (as seen in the above map), property value increases were widely distributed throughout the city. The Detroit News says that 90 percent of the city’s 194 neighborhoods showed an increase in value, an indicator that the downtown revitalization is beginning to have some impact on the city overall.
To understand why this is important, one must understand where Detroit is coming from. Last summer, the Detroit Free Press noted rising home prices in the city, providing some evidence that this change would come. But Detroit was rebounding from an extremely low base. From the Free Press article:
“In the city of Detroit, the median sales price hit $38,500 (last) June, up 41 percent from a year earlier, according to a report released Monday by Realcomp.
Detroit’s median home sales price is now about 275 percent higher than it was five years ago ($10,325), back when many houses in city limits still sold for less than the cost of used cars.”
Emphasis added. Anyone with any inkling of knowledge about housing value can tell you that a median sales price of $38,500 in today’s America is incredibly low. Relatedly, a blog piece I wrote last summer showed that the house I grew up in in Detroit has appreciated at less than the rate of inflation for the last fifty years.
As I’ve noted before, prices that low aren’t indicators of an affordable real estate market, but a broken one. The traditional home mortgage market largely left Detroit some time ago, meaning most real estate purchases were cash purchases. Renovations and additions ground to a halt. Vacancies increased. And the downward spiral extended until prices hit bottom.
This isn’t, however, a recent phenomenon related to the city’s 2014 bankruptcy. This is something related to the city’s decades-long economic decline and population loss, and government mismanagement, going back to the 1950’s. During the midst of Detroit’s bankruptcy the Detroit Free Press reported that Detroit hemorrhaged property value losses starting in the late 1950’s. In 1958 the total value of residential property in Detroit peaked at $45.2 billion in 2013 dollars. By 1980, residential property values plummeted to just $15 billion in 2013 dollars, an incredible 67 percent decline over two decades. Residential values bottomed out at about $8.8 billion around 1998, and then jumped upward to about $16 billion prior to the housing crash — evidence that Detroit, too, was subject to the nationwide housing bubble. Property values began another slide in the aftermath of the Great Recession that didn’t rebound until the last couple of years.
How did a local real estate market crash? In Detroit’s case, I argue the following played a role:
An oversupply of housing. The same suburban housing boom that fueled the growth of metros across the nation was apparent in the Rust Belt, too. The problem, however, is that the boom took place at the same time that Rust Belt metro growth ground to a halt in the ’60s and ’70s. They rarely gained the population to substantiate the development. That led to…
Weakened demand. Metros like Detroit and Cleveland continued to push outward even as their metro populations stagnated. Very quickly a preference is established for new housing over old housing, dropping the value in older neighborhoods.
Obsolescence. Akron planning director and blogger Jason Segedy recently wrote that “a scrapyard technically has a large supply of cars, but none of them are drivable. A similar situation exists in the urban housing market. All of the high-quality older homes, in the desirable neighborhoods, are already occupied and cared-for, leaving behind a large stock of defunct and obsolete vacant housing which no one wants, that is slowly rotting away.” That’s true in the case of many Rust Belt metros; Rochester, Buffalo, Cleveland, Pittsburgh are among many Rust Belt metros with some of the oldest housing stock in the nation. And few have any of the contemporary amenities that today’s astute homebuyers demand.
Vacancy. Property owners who believe that they’ll never get a return on their investment are liable to walk away. Back in May the Center for Community Progress and the Lincoln Institute for Land Policy published a report outlining the extent of vacant properties in a select group of U.S. metros. It’s no coincidence that cities with the highest levels of hypervacancy, or the numbers of census tracts that have in excess of a quarter of its properties vacant, reads like a list of the lowest value cities as well.
Segregation. Most Northern cities pioneered a new segregation tactic as the Great Migration brought hundreds of thousands of African Americans from the rural South to the urban North — neighborhood avoidance. Residents engaging in “white flight” ceded ground to incoming minorities within urban neighborhoods and never looked back. This further weakened demand (substantially decreasing the number of potential homebuyers viewing homes within some neighborhoods) and deepening patterns of segregation already established by redlining practices.
Economic and social forces converged to break Detroit’s real estate market.
So what’s happening now? The economic boom in Detroit’s downtown, which began in earnest at the start of this century, is beginning to have sweeping impact on the rest of the city. For sure, longtime homeowners aren’t exactly getting rich, or even getting new, well-paying jobs, for that matter. However, more stories like this one are likely to emerge. Economic conditions are improving, and rather than concentrating all the benefits downtown, we may see some outward expansion of revitalization.
I prefer to think of this rebound not as the first step toward the displacement of low and middle income people in Detroit. I view it as an opportunity to fix what had long been broken, and as a necessary first step in the redemption of a city.