By Allen C. Goodman / Special to The Detroit News
Supporters of the Michigan’s Cool Cities initiative must recognize that a resurgent Detroit requires a vibrant housing market. To do this, the city must provide safety, shopping and good schools so consumers wish to live there. Similarly, land owners and housing developers must provide dwelling units that can compete financially with other investments.
A look at Detroit’s past will help today’s leaders learn how to revive Detroit’s housing.
From 1970 to 2000, Detroit’s population fell to less than 1 million from more than 1.5 million. Although comparable percentage declines occurred in Cleveland, Buffalo and St. Louis, Detroit’s decrease was accompanied by a near collapse in house values that led to an almost total collapse in housing investment.
In the 1970s, every one of the 50 largest U.S. cities experienced a significant drop in household size because of the shrinking of large baby boom families and the desire of older and single Americans to live alone. Baltimore and Boston each lost about one in eight residents, but they maintained their housing stock.
In contrast, Detroit’s households plummeted in each of the last three decades. The city lost more than 64,000 households in the 1970s, 59,000 in the 1980s and an additional 38,000 households in the 1990s. As families vacated dwellings, many owner-occupiers and landlords delayed maintenance and repairs, and eventually abandoned the buildings. From 1970 to 2000, more than 160,000 dwellings left the Detroit housing stock. In 30 years, Detroit lost almost as many dwellings as Cleveland has now.
As demand collapsed, startling declines in home prices followed. Detroit’s 1970 median value, in constant 1999 dollars (adjusted for inflation) was $66,984. By 1990, it fell to $32,249.
In short, owners of Detroit houses lost more than half of their equity in 20 years.
The 1990s saw increased house values. In fact, the median value in Detroit nearly doubled. But the 2000 median house value of $61,532 was still 8.5 percent less than that in 1970.
Conditions were very different in the suburbs. From 1970 to 2000 median house values rose to $141,753 from $94,464. It was accompanied by an increase of almost 500,000 housing units (as many as Detroit had in 1970).
What happened in Detroit? For the last three decades, we hardly built enough new housing to replace the 1 to 2 percent of units that each year fully depreciated and required replacement. The lack of investment failed to replace other housing that was abandoned because plummeting values prevented owners from selling them or renting them out for enough to cover costs.
As a result, Detroit’s net investment in housing units fell by at least 10 percent each decade.
Was the investment collapse a conspiracy by developers or a plot by suburban whites to punish largely African-American Detroit? My research indicates that from 1970 to 2000, across 300 U.S. cities, race had little to do with housing supply.
The explanation is simpler; property values collapsed in Detroit, and developers could not earn competitive returns. Developers built instead in the suburbs, responding to higher values and better returns to housing investment.
What can policymakers do? Maintaining or expanding Detroit’s housing supply requires effective initiatives to help landlords and developers assemble land parcels and to provide creative financing to build new houses or rehabilitate existing ones. Safeguards must protect the lowest income renters, who may be adversely affected by increased housing prices.
Study after study has indicated that families seek locations with safe streets, good schools and good shopping, a high quality of life. These Cool Cities goals will increase housing demand, raising house values and providing positive signals to owners and developers to construct more units. Cities with these qualities experience increased housing values and improved property tax bases.
Any Cool Cities initiative must be grounded in these economic fundamentals.
Allen C. Goodman is a professor of economics at Wayne State University in Detroit. Send letters to The News at 615 W. Lafayette, Detroit, MI 48226, (313) 222-6417 or letters@detnews.com.
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