Why do so many houses end up abandoned?

[canuck]

Funny about Toronto, I will use it copiously if you dont mind...

[Hermod]

Funny about Toronto, I will use it copiously if you dont mind...

Be my guest as it is not original with me. I just read it somewhere and thought it was funny.

[sumas]

Just saying, in Michigan it is not called amalgamation. It is called detachment. I have the paperwork and it is not entirely but nearly impossible.

[sumas]

In answer to this thread. We inherited our well loved home. The taxes were to be 8900 dollars. That was a serious joke. Took us two years to adjust appraisals and an appropriate tax rate. Lots of people do not have the time or where withall to fight that battle.

[GUSHI]

People moved out. Race issues, poor services, didn't feel safe anymore,

[antongast]

Houses end up abandoned because for many decades, housing construction in metro Detroit has outstripped population growth.

[night-timer]

When the Industrial Age ended, Detroit was no longer a boomtown. Probably had something to do with it.

[Canadian Visitor]

So, I think I've got a handle on some of the whys as to abandonment.

I think of everything posted, the comment that spoke of taxes actually greater than the value of the property struck me most. It hadn't occured to me taxes could be so high on property worth so little.

How are property taxes calculated in Detroit? Here they are a % of the property value [[re-assessed regularly based on recent sales).

Specifically, in Toronto, a $500,000 home would pay $3,728.83 in property taxes.

A $15,000 property [[no such thing exists here) would pay $111.86 per year.


Thus why I found it stunning it was possible to pay more in tax that a property's value.

****

On a slightly different note.

If I 'get' how Detroit ended up w/so many abandoned properties, I don't get how they stayed that way.

That is to say, I would expect 'the market' to have a self-correcting effect.

If many people feel pinched by the price of housing, when prices plummet in an area, I would expect opportunists [[and I say that in a nice way) to move in and start buying property and fixing it up. Buy low, sell high....etc.

OF course, this doesn't always happen in real time. Toronto has had lower income areas that have never 'gentrified' or haven't done so in decades.......

But normally, after some years, I find that if an area looks a bit tired, the artists and the young move in, soon enough its a bit brighter and there's a quirky indy coffee shop or bar......and gentrification of some form begins again.

That is now happening in some measure in downtown and midtown in Detroit....but not so much the neighbourhoods.

[401don]

It's pretty obvious why houses ended up abandoned. People were sick of the crime, poor schools, lack of services, lack of employment opportunities, etc. A couple of hundred thousand, both black and white, moved to the inner city suburbs as soon as the prices became low enough to do so. As more moved out conditions of course became much worse as the tax base eroded and it snowballed. Who would you expect to now occupy these mostly cheaply constructed homes in bad neighborhoods?

[Goose]

you own a house worth $25,000 in Detroit, [[quite expensive, above the average price per Realcomp), you need a new roof thats going to cost you $7000, which isnt going to add anything to the value of the home... so you don't get the roof and patch here and there, and then in 2-3 years, your furnace goes, and thats another $3000, and the front steps and porch start deteriorating, another $2000, sooner or later, its unliveable, and the investment to even minimally repair is out costs any value in the home, so you walk......

[Danny]

Why do so many houses end up abandoned?

So I have a couple of ideas on the above question.....

But as I've never seen abandonment on any scale here, or on a similar scale in the U.S., that I can personally recall, I was curious about why and how it happens [[has happened) to the degree that it does?

So to share one supposition, its my understanding that under U.S. law one can abandon a mortgaged property to the lender and then just walk away from the mortgage, is that right?

I know you can't do that under Canadian law, where if you default, and the bank sells your home for less than you owe, you still owe the bank the difference [[the debt is not discharged by merely surrendering the property).

I would imagine, if I've got that right, that this accounts for some difference in 'abandonment' levels.

Though I would wonder why a lender ending up w/such a home wouldn't sell it to someone as a going concern.

Beyond that, however, I still find it difficult to fathom.

I assume, that many abandoned home did not in fact have mortgages on them.

So even if one couldn't afford to pay the routine bills, or just wanted to move; even if the home was low in value, I'd assume you'd want a clean sale to get whatever money you could out of it.

I would equally assume any buyer would either fix-up or demolish rather than just watch a property rot, and value erode.

***

I can think of only one other Canada/US difference that might bear on this, which is that Canada's cities tend to more....hmmmm, invasive about property standards management. ie. [[many Canadian cities will not let your lawn get overgrown, they will warn you once, then mow it for you at 10x market price; don't pay and they add it to your property tax bill, don't pay that, and lose your home).

This sort of intervention would likely diminish any 'abandonment' value.

However, even if that makes some small difference; I wouldn't expect it to account for the scale of abandonment in the Detroit area.

Thoughts?

Your housing capital may work in Socialist Canada, But not in Capitalist America.

[Dumpling]

I don't know the exact stats now, but at one point in the recent past, two
out of every three jobs in the Detroit area were auto related. There was a
massive decline in auto industry employment between the years 2006 and
2010. This helped precipitate the housing foreclosure crisis in Detroit. In
the area I live in, houses would be foreclosed on, people would leave the
houses and associated mortgage and tax debts behind, and then, believe it or not, most of these vacant houses sat for a year or two in relatively intact condition before the horde of strippers started coming through the area, damaging the houses to the point demolition would be a good option.
There was a downturn in auto industry jobs, then a downturn in the number of active police officers in Detroit at the same time that there was an upturn of black market activity. This is usually described as "the neighborhood went
way downhill" in the other threads.

[DetroitPlanner]

As more moved out conditions of course became much worse as the tax base eroded and it snowballed. Who would you expect to now occupy these mostly cheaply constructed homes in bad neighborhoods?

Not all the abandoned homes are cheaply constructed or in bad neighborhoods. Here is an example: Gov Mitt Romney's boyhood home in Palmer Woods: http://wonkette.com/415451/mitt-romn...o-be-destroyed

A huge issue here is how property taxes make it difficult to live in these places. Yes you can buy a mansion for much less than you can in Birmingham, Bloomfields, or Pointes, but you really have to love your neighborhood to pay $20k+ in taxes every year while you don't see things get any better.

[hotwheels]

Higher taxes are not so much of an issue if you are buying a house for $500k that would run you 3-4 times that in the suburbs.

I do not know the mill rates in the various burbs, but I doubt taxes are cheap on a 2 million dollar home in GP.

On the flip side you get much better services for your money in burbs. Admittedly I do not live in the area, yet, however it seems from what I read here Palmer Woods is as safe as any of the burbs so I wouldn't have a problem paying a higher mill rate since I'm getting the house at a huge discount.

If the city can ever improve it's services to be at least comparable to the burbs, especially in the "good" parts of the city that are left, I can see a lot of buying activity and price increases in those areas.

[EastsideAl]

If I 'get' how Detroit ended up w/so many abandoned properties, I don't get how they stayed that way.

That is to say, I would expect 'the market' to have a self-correcting effect.

If many people feel pinched by the price of housing, when prices plummet in an area, I would expect opportunists [[and I say that in a nice way) to move in and start buying property and fixing it up. Buy low, sell high....etc.

I don't think you really get the meaning of valueless homes. What it means here is that nobody wants the house at $0, or so close to it as makes no difference. In reality, it means there are certain houses and areas that you couldn't pay people to live in. Literally.

Thus, there is no market for those homes that could "correct." As someone said earlier in this thread, the land has negative value, and the houses on that land only reduce that value further. So, there's no rational reason to invest in it and bear any costs. Particularly since there is heavy population loss and for the foreseeable future very little economic activity in the area to possibly attract and hold replacement population and boost values. You simply can't "sell high" [[or low, or at all) if there are no buyers.

[Dumpling]

Ahead of the auto and housing crises, there was underemployment in Michigan even in the suburbs. Since mortgage loan money was readily available through 2006 this meant that many suburbanites [[such as my Dad,
a GM retiree) opted to be self-employed in home improvement and repair.
A house would be bought, fixed up, then put back on the market again.
So, while Detroit proper housing stock was either declining slowly or was in stable condition through 2006, many areas in the suburbs were being stocked with new houses, or the older houses were being fixed up by former auto industry employees, to a very good condition. This meant that in the time of the end of the housing bubble, about years 2007 through 2009, there was an ample stock of beautiful rentals in relatively more safe, manicured suburban neighborhoods [[these were houses that could not be sold for anything like what they were worth before, so now they had to be "held" until the market
improved) on the market for anyone, including proper Detroiters, able to pay the rent in any way.

[Dumpling]

I live just over a mile away from the University of Michigan Dearborn Campus.
Recently a new dormitory was built by the campus there, complete with a major pedestrian crosswalk across Evergreen from the dormitory to the campus. So there is a population uptick close to me geographically and this population is paying good money for their limited accomodations. There is no similar pedestrian crosswalk across the Ford Road/Evergreen interchange.
U-M and Henry Ford Community College students or Fairlane Mall shoppers
crossing there from Dearborn Heights or Detroit have to watch out for cars and take their chances. This is after passing through streets that have all
too many "assault and battery" listings in crimemapping. My neighborhood
ought to be a better deal for the students than the dormitory what with all
of its vacancies and it ought to be an incubator for their small [[legitimate) businesses they might start on the side. But it's not.

[Canadian Visitor]

I don't think you really get the meaning of valueless homes. What it means here is that nobody wants the house at $0, or so close to it as makes no difference. In reality, it means there are certain houses and areas that you couldn't pay people to live in. Literally.

No I don't suppose I do understand that.

[[not arguing, explaining my thinking)

Granted I'm not from Detroit and so have only the casual knowledge of occasional visitor....

But when I think of a street w/near value-less homes......this is what comes to my mind....[[hypothetical)

Crime on the street will be low if most homes are abandoned/unlivable, as there is no one to commit a crime against.

OF course, its likely there's trouble nearby.....

But its also likely that in some cases, that street will be near to better streets only a block or 2 away.

So.....I can buy let's say the five surviving houses on this hypothetical block for 10k each. That's 50k total.

Let's assume that each would require 10k in work for basic livability, 10k more for some updating to attract modest income tenants or owners, and 5k in curb appeal investments each. So 35k per home, including purchase and restoration.

Now, I've got 5 homes, at $165,000 invested. Still very modest.

The street may not look the best. If the vacant sites are near value-less they can be bought and brought to an attractive state pending future development and/or added to the yards of the adjacent homes. At 4k per vacant lot, say, 10 lots, that's another 40k, and 10k to sod/mow, or naturalize but with some big trees and some wildflowers to sell a bucolic look.

Now I'm at 215k, but have let's say, 5 sell-able homes, and maybe 8 lots, with 2 have been severed to create larger yards for abutting properties.

BUT, you tell me, the city infrastructure is off, safety is an issue.....

Meh, 10 new street light poles with LED lights are what, 30k max? Fit the homes w/good safety design, attached garages or easy front/side door access, good yard lights, alarm system on the home. Pay for private security for the first year to patrol after hours for the first year after occupancy; 10k for 4 passes a night, plus response.

Get the support of the local councillor, and the district police chief and make sure some improved resources will be made available.

Total investment, maybe 260k and change.....I still couldn't buy a property for that here. Not one.

Fixing the school is a bit outside of do-able for a small-scale developer.

But one who had deep pockets, and did what I suggest above on 10x the scale could easily budget 100k for a new school playground and some new computers.

You could sell those homes, in theory, for less than 1/2 the going rate in the nearest 'good area' and still make a handsome profit.

I realize theory and practice are not the same.

And some areas have reached a level both real and perceived where what I describe may no longer be practical.....

But I have difficulty imagining that it wasn't once practical and wonder why it didn't happen.

[jimmyr]

Boom towns have gone bust throughout the history of the world. People rarely develop an affinity to bring them back, especially not in the young US. The auto boom was lightning in a bottle and will never be replicated again. The houses are abandoned because Detroit doesn't serve nearly the same purpose anymore. People and industry dry up or cut their losses and move on. It is too expensive to fix everything. A clean slate down south or out west is much more economically viable. This isn't rocket science.

[Canadian Visitor]

Boom towns have gone bust throughout the history of the world. People rarely develop an affinity to bring them back, especially not in the young US. The auto boom was lightning in a bottle and will never be replicated again. The houses are abandoned because Detroit doesn't serve nearly the same purpose anymore. People and industry dry up or cut their losses and move on. It is too expensive to fix everything. A clean slate down south or out west is much more economically viable. This isn't rocket science.

Pittsburgh was a steel-town and it has largely reinvented itself.

Hamilton, ON is doing likewise, becoming a university and knowledge-based industry town.

Its not as if this was a gold-rush. The resources of Detroit, including people, a strategic border/trade crossing, an abundance of fresh water, and access to nearby quality agriculture; lovely cottage areas not so far to the north; that's all still there.

So is industrial expertise, major post-secondary institutions; and now large blocks of serviced [[or servicable) vacant land.

Beats the hell out of So-Cal where they are running short of water, Nevada, where they likewise import water at great cost from a great distance and have no local food growing capacity of significance.

Offers infinitely more reasonable land pricing, and comparatively cheaper labour because of that, as well as higher than average unemployment.

Perfect? Of course not; but an opportunity? Sure looks like one to me.

If I lived closer, I would likely directly invest. But I'm very tied to the GTA and don't like investing from a distance.

[Hermod]

OK, CV, you just bought five houses and are going to fix them up. A plumbing contractor comes in and replaces all of the iron or lead piping with brand new copper tubing in your five houses. Unless you have on-site 24/7 security, the first dark night, the scrappers come and take all of your copper. You are out the money and have to start over.

[jimmyr]

Beats the hell out of So-Cal where they are running short of water, Nevada, where they likewise import water at great cost from a great distance and have no local food growing capacity of significance.

No it does not. Detroit land is practically free, but what are the major investors doing with their capital? They're ignoring Detroit and buying in places like California, Nevada, Florida and Arizona.

[Dan Wesson]

No it does not. Detroit land is practically free, but what are the major investors doing with their capital? They're ignoring Detroit and buying in places like California, Nevada, Florida and Arizona.

Ahh the sand states where the worst of the worst occurred concerning foreclosures and property values under water.

[Hermod]

Ahh the sand states where the worst of the worst occurred concerning foreclosures and property values under water.

Because they had the biggest boom [[and bubble). Now they are slowly digging out. The Detroit bubble was mostly an unending tale of mortgage fraud, liar loans, and bait and switch mortgage generation. Real value was close to zero.

[Dumpling]

There are probably hundreds of great investment opportunities in the
greater metropolitan Detroit area. Someone sincerely wishing to invest
in Detroit maybe should pay a business school student here to assess
opportunities for their summer job. Overall it is my feeling that the
Detroit area is undercapitalized [[I am partly saying that because my
mortgage is about $60,000 and my house is maybe about $20,000 - sigh -
can't use it for a piggy bank - even less can some suburbanites with their bigger mortgages use theirs).
Then there's the bombed out Dresden parts of Detroit. Should you invest there? Since I work at the WWTP I pass through one of these areas. You
can see some of this at Google Maps - for example there is a charred wreck
at the intersection of Burdeno Street and Dearborn Street that used to be
"Crib in the Hood". Dearborn Street itself however is cleaned on a regular
basis by the Levy Company, not like most other streets in Detroit that lately are not cleaned at all by the city. Further up Dearborn Street close to
other charred wrecks there is a nice working household that has survived but notice that it has a brick and metal fence enclosure completely encircling the property. If there needed to be much more of this, it could have a moat, drawbridge, knights, and pots of boiling oil.