Detroit spends $9 million on 30 homes.

[animatedmartian]

But makes back only $2 million on sales.

Detroit City officials spent as much as $537,000 per home renovating 30 houses under a federal program to fight blight only to sell most for less than $100,000 a piece, a Detroit News investigation has found.

The Detroit Land Bank transformed eyesores — some that were rotting and burned — into gleaming gems, with glass-tiled bathrooms, stainless steel appliances, underground sprinkler systems and even $35,000 geothermal heating in a few. The goal was to entice middle-class families into East English Village and Boston Edison to strengthen the neighborhoods.

But as the land bank works to sell the last three homes in the program that began in 2011, even some buyers say the costs are outrageous for a bankrupt city. Susan Hanafee was shocked to learn from The Detroit News that $430,000 was spent on the three-story Boston Edison home she bought last year for $80,000.

In addition, several families got between $10,000 and $20,000 in forgivable down payment assistance.

Wasteful spending or needed rehabs to save two neighborhoods?

http://www.detroitnews.com/article/2...ring-2-million

[emu steve]

But makes back only $2 million on sales.


http://www.detroitnews.com/article/2...ring-2-million

In addition, several families got between $10,000 and $20,000 in forgivable down payment assistance.

Wasteful spending or needed rehabs to save two neighborhoods?

When I read that headline I went...

Then I thought a little. Terms like 'seed money'. Then I thought of Tesla and what it cost them to produce their first thousand or 10,000 cars. Bet it wasn't 75K. Maybe 75K x 5 or 10. Huge sunken, fixed costs to get up and running.

Then I thought of what Gilbert is trying to do, namely, try to get some MOMENTUM building.

Ten or 15 buildings [[or whatever number it is) isn't a big percentage of the buildings in downtown but it is encouraging others to take a second look at build momentum. It always takes pioneers to take the first steps.

I'm taking a view from 500 miles [[away), seems we have seen housing make a comeback downtown and Midtown and now time to select high potential neighborhoods and try to reinvigorate them, one at a time...

[Bham1982]

What a deal. 540k per home renovation in a town where average home costs like 15k.

You could have given every homebuyer a 400k McMansion in an affluent suburb plus 100k in equities, and in 20 years they would all be [[paper) millionaires.

[Kevgoblue]

Good thoughts, EMUSteve.
Of course the comments after the article were nothing but people screaming "waste! waste! waste!" but you make a very good point.

Ultimately whether the decision to spend the money was a good one or not will be determined by the future health and vitality of the 2 neighborhoods.

That being said, it may not have been a very wise decision to have the income caps on those eligible to purchase the homes. I believe it said $77K max for a family of 4. Those dollars would be stretched pretty thin trying to maintain your family and a 3 story home in Boston Edison.

[Smirnoff]

Need those officials on the Retirement Committee, or is it them......?

[Bham1982]

That being said, it may not have been a very wise decision to have the income caps on those eligible to purchase the homes. I believe it said $77K max for a family of 4. Those dollars would be stretched pretty thin trying to maintain your family and a 3 story home in Boston Edison.

This is all federal money, which, in the case of HUD, always comes with specific income restrictions. They could never sell these homes to higher income families, because HUD wouldn't approve.

They're basically using federal urban renewal funds to enrich connected contractors. The homebuyers are besides the point. No one puts 10x into a home worth x.

[animatedmartian]

When I read that headline I went...

Then I thought a little. Terms like 'seed money'. Then I thought of Tesla and what it cost them to produce their first thousand or 10,000 cars. Bet it wasn't 75K. Maybe 75K x 5 or 10. Huge sunken, fixed costs to get up and running.

Then I thought of what Gilbert is trying to do, namely, try to get some MOMENTUM building.

Ten or 15 buildings [[or whatever number it is) isn't a big percentage of the buildings in downtown but it is encouraging others to take a second look at build momentum. It always takes pioneers to take the first steps.

I'm taking a view from 500 miles [[away), seems we have seen housing make a comeback downtown and Midtown and now time to select high potential neighborhoods and try to reinvigorate them, one at a time...

That's an interesting way to look at it. But being a devil's advocate here, is it really the responsibility of government using taxpayer money to fund those fixed costs?

Had the headline said "JP Morgan spends millions to rehab homes", I think the general response would have been quite the opposite.

[animatedmartian]

This is all federal money, which, in the case of HUD, always comes with specific income restrictions. They could never sell these homes to higher income families, because HUD wouldn't approve.

They're basically using federal urban renewal funds to enrich connected contractors. The homebuyers are besides the point. No one puts 10x into a home worth x.

The limit was $77,000 for a family of 4. That's slightly higher than the national median income. Is not the goal to get middle class families into Detroit?

[mikeg19]

Too bad I can't convince my wife to buy one of the many renovated homes in Palmer Park or Boston Edison. $500K in renovations and basically a new home for $150K? Sounds great.

But then factor in the crime, insurance, poor schools, and whelp, that argument isn't going to go anywhere....

[Bham1982]

The limit was $77,000 for a family of 4. That's slightly higher than the national median income. Is not the goal to get middle class families into Detroit?

I don't know the national median income nor the goal of this project [[I think national median income is somewhere around 50k, but that's neither here nor there).

I'm just saying that federal HUD funds come with specific income guidelines. It isn't really relevant what the goal is; if you're taking these funds you also take the accompanying mandates.

[wolverine]

When I read that headline I went...

Then I thought a little. Terms like 'seed money'. Then I thought of Tesla and what it cost them to produce their first thousand or 10,000 cars. Bet it wasn't 75K. Maybe 75K x 5 or 10. Huge sunken, fixed costs to get up and running.

Then I thought of what Gilbert is trying to do, namely, try to get some MOMENTUM building.

Ten or 15 buildings [[or whatever number it is) isn't a big percentage of the buildings in downtown but it is encouraging others to take a second look at build momentum. It always takes pioneers to take the first steps.

I'm taking a view from 500 miles [[away), seems we have seen housing make a comeback downtown and Midtown and now time to select high potential neighborhoods and try to reinvigorate them, one at a time...

Excellent post.

[ghettopalmetto]

When I read that headline I went...

Then I thought a little. Terms like 'seed money'. Then I thought of Tesla and what it cost them to produce their first thousand or 10,000 cars. Bet it wasn't 75K. Maybe 75K x 5 or 10. Huge sunken, fixed costs to get up and running.

Then I thought of what Gilbert is trying to do, namely, try to get some MOMENTUM building.

Ten or 15 buildings [[or whatever number it is) isn't a big percentage of the buildings in downtown but it is encouraging others to take a second look at build momentum. It always takes pioneers to take the first steps.

I'm taking a view from 500 miles [[away), seems we have seen housing make a comeback downtown and Midtown and now time to select high potential neighborhoods and try to reinvigorate them, one at a time...

I can understand that line of thinking. But if these are HUD homes, why the high-end finishes? Wasn't there anything available that was a bit more *ahem* economical? Was nobody running numbers throughout the course of the renovations?

This just seems excessive. I don't know that you can overspend on renovations and "hope" that the neighborhood becomes "high-end". Can you measure "Momentum"?

Every neighborhood I've ever seen redevelop has been on the part of small, private investors who renovate one house at a time. If investors went in guns blazing with this kind of work, they would be waiting in breadlines. Usually, you have a good idea of the price point, and renovate accordingly.

In Cleveland's Slavic Village--which was hit particularly hard by the foreclosure crisis--a private developer is renovating 300 homes. The homes were acquired for very little money from the county land bank. Since the finished homes are expected to sell in the $50,000-$60,000 range [[It has always been a working class neighborhood), the developer is anticipating spending about $40,000 per house on renovations. There will be some new roofs, perhaps some new siding, interior cosmetic improvements...but I think there will be a distinct lack of blingin' granite countertops, diamond-encrusted siding, and champagne-filled hot tubs.

[Bham1982]

And the Tesla comparison is not really a good one, at all. In manufacturing there are huge front-end fixed costs. There is no such issue with home renovation. There is no reason Home Renovation #1 should cost more than Home Renovation #100.

And things like gentrification are spurred by macro factors, not how much you put into a renovated home. If B-E gentrifies [[if that is even in the goal) it won't have anything to do with whether you put 50k or 500k into a HUD home; it will be because the values are being deemed attractive by the buying public.

[mwilbert]

I'd rather see them spend the money on fixing up old housing than building new houses, and obviously the main point is to fix the houses and strengthen the neighborhoods, not to house people, so whether you could house them more cheaply someplace else is not really important.

However, this kind of result is indefensible. If it actually takes half a million dollars to renovate a house, you can't possibly get any "momentum", because there is no reservoir of people with that kind of money waiting to renovate houses in these neighborhoods. If it doesn't take that much, they shouldn't have spent that much. And if these were houses that needed an extra-large amount of work, they should have let these houses go and picked some others.

It is one thing to see a particularly fine or historic building and decide to renovate it uneconomically, just because you think the building is worth saving. But that is not a feasible basis for any kind of general neighborhood improvement or housing program.

[Kevgoblue]

I don't know the national median income nor the goal of this project [[I think national median income is somewhere around 50k, but that's neither here nor there).

I'm just saying that federal HUD funds come with specific income guidelines. It isn't really relevant what the goal is; if you're taking these funds you also take the accompanying mandates.

I wasn't talking about cost of aquisition, rather cost to maintain. These [[B-E) are huge homes in a historic neighborhood. I believe there is definate value to not letting the neighborhood collapse. But the cost of upkeep for a 100 year old home is not minimal. Just the heat / AC costs alone would be huge. While many of the normal maintenance costs will most likely be delayed due to the renovation, upkeep is still necessary. Kids break a window throwing a baseball? Can't run to Home Depot and put in a Pella fiberglass replacement in a historic district. Bathtub overflows? Can't slap a chunk of drywall on the ceiling to repair the water damage. It's lath with 3 or 4 coats of plaster.

These homes were not built to be average working class housing. And trying to put people of limited means in them will most likely ensure that they don't receive the maintenance required.

[Bham1982]

These homes were not built to be average working class housing. And trying to put people of limited means in them will most likely ensure that they don't receive the maintenance required.

I agree with this. It is a conundrum.

If the limit is 77k for a family of four, I cannot see how I could maintain such a house on that income level. Even at twice that income level, I would be very worried given the huge costs in these big old homes. They could have 4-figure heating bills.

[Wesley Mouch]

I don't know the national median income nor the goal of this project [[I think national median income is somewhere around 50k, but that's neither here nor there).

I'm just saying that federal HUD funds come with specific income guidelines. It isn't really relevant what the goal is; if you're taking these funds you also take the accompanying mandates.

So the folly was the federal guidelines, not the local implementation. Or maybe the blame could equally be spread. Local abuse of federal waste. Tis the system we have setup to deal with our problems. Gotta problem. Create a federal program, and pour money over it. Are you surprised its inefficient? Don't be.

[Honky Tonk]

I wasn't talking about cost of aquisition, rather cost to maintain. These [[B-E) are huge homes in a historic neighborhood. I believe there is definate value to not letting the neighborhood collapse. But the cost of upkeep for a 100 year old home is not minimal. Just the heat / AC costs alone would be huge. While many of the normal maintenance costs will most likely be delayed due to the renovation, upkeep is still necessary. Kids break a window throwing a baseball? Can't run to Home Depot and put in a Pella fiberglass replacement in a historic district. Bathtub overflows? Can't slap a chunk of drywall on the ceiling to repair the water damage. It's lath with 3 or 4 coats of plaster.

These homes were not built to be average working class housing. And trying to put people of limited means in them will most likely ensure that they don't receive the maintenance required.

In a nutshell, you pointed out exactly what went wrong in Detroit in the first place. Homes were being sold, [[not historic, though), @ auction for a pittance of what they were worth. The idea was to sell homes cheap, populate the neighborhoods, encourage growth, etc., etc., etc., blah, blah, blah. What resulted were people of little means buying these up, running them into the ground, then buying another for $1000. The people that were left in these neighborhoods started to move out, as neighborhood homes became run down and the crime increased. I hope they have better luck with Plan B.

[mwilbert]

I agree that trying to maintain a big B-E house on median income would be very difficult. I did notice that the article said that at least some of the houses had gotten geothermal systems, which should reduce the heating/cooling costs quite a bit.

I have to think that it would have been wiser to fix up smaller houses.

[Scottathew]

I think it would have made sense to do more modest updates on a larger number of houses.

[Goose]

this is the federal government at work, with no consideration given to economics... there is no logic in putting 5X into a house worth X... because there is no profit motive, no risk of "loss", everyone involved lined their pockets with federal money.... these are very nice homes after renovation indeed... but whats more likely to happen? the remaining bombed out houses in the neighborhood become updated to match these, or these homes slowly deteriorate to match the neighborhood....

wasn't tons of federal money dumped into new construction homes in Highland Park many years ago? how are those neighborhoods doing...

a lot of leftists don't like the free market or capitalism... but this is their alternative....

and yet they have 100% confidence that the national health care system can be handed to this same federal government and cost savings will be realized....

doh

[emu steve]

And the Tesla comparison is not really a good one, at all. In manufacturing there are huge front-end fixed costs. There is no such issue with home renovation. There is no reason Home Renovation #1 should cost more than Home Renovation #100.

And things like gentrification are spurred by macro factors, not how much you put into a renovated home. If B-E gentrifies [[if that is even in the goal) it won't have anything to do with whether you put 50k or 500k into a HUD home; it will be because the values are being deemed attractive by the buying public.

Why not?

There might be more parallels then meets the eye.

We are not talking about one electric car or one house.

We are speaking of a car company trying to come up with a new paradigm for making vehicles much differently than in the past. If Musk wants an electric car he could buy one from GM. Lol.

A neighborhood is much more a 'macro factor' than a single house. One nice house and 19 bad ones isn't going to do anything for that block.

The idea is to reverse what was 'block busting' in what the 50s. Instead of tearing up blocks, driving people to sell and leave, the new idea is to reinvigorate blocks and attract folks to buy in those blocks. Most people [[some folks on this board not too much) are optimists and hope things will get better. Folks want to be part of a neighborhood which gets better and better.

Once a number of these houses are in place, then other folks will through the private market snap up other houses cheap and fix them up.

Folks hoping for the success of Detroit should have a map showing neighborhoods which are or might develop over the next 5, 10 or 15 years.

It has always been my view that Detroit HAD TO save the downtown/CBD to have a chance to survive. Take all of the commercial activity out of downtown Detroit and it literally has nothing. Lot of tax base is those commercial buildings.

Next, build around other assets, e.g., athletic teams, Wayne State, medical facilities in Midtown, and then go into neighborhoods which have potential to come back.

Detroit is very large in terms of land area, so for all of the neighborhoods to come back will be a herculean task. But I hear good things about CBD/downtown, Midtown, Corktown, and a few other neighborhoods which are showing 'green shoots'.

[Bham1982]

The idea is to reverse what was 'block busting' in what the 50s. Instead of tearing up blocks, driving people to sell and leave, the new idea is to reinvigorate blocks and attract folks to buy in those blocks. Most people [[some folks on this board not too much) are optimists and hope things will get better. Folks want to be part of a neighborhood which gets better and better.

The question is why would a few lavish interior renovations, many times beyond the market value, impact overall neighborhood desirability.

B-E's relative shortcomings to people of means have nothing to do with home interiors. And these lavishly renovated homes are guaranteed to not go to people of means, per the HUD requirements. You don't attract rich people [[if that's the goal) by subsidizing middle class people in homes built for the rich.

[gvidas]

I think this story says more about the state of housing in the city. Yes, there are a lot of houses around, but many of them, especially in the "tipping point" neighborhoods, are gigantic historic homes with major problems [[foundation damage, burned, scrapped, many years of neglect: pick three) compounded by lead, asbestos, and fifty+ years of new understanding on how houses should be built.

In short: houses in this city can be extraordinarily expensive to fix up.

The resulting choices are A) don't fix them up; B) spread the cost around to private investors [[what DLB is doing now); or C) do a crap job, making it more expensive when the next person comes along.

So, yeah, on a flatly economic perspective the land bank wasted a ton of money. Maybe they should have just torn these houses down. But I'm glad they didn't just plaster over the expensive problems and then pawn them off to unsuspecting families.

The land bank owned these houses because they failed to sell at the auction. Meaning private investors didn't want them. So, if the point of the program is to put federal money into projects which benefit the neighborhood but are not viable for private capital, then, well, this is what it looks like.

[Wesley Mouch]

...snip...The resulting choices are A) don't fix them up; B) spread the cost around to private investors [[what DLB is doing now); or C) do a crap job, making it more expensive when the next person comes along.

So, yeah, on a flatly economic perspective the land bank wasted a ton of money. Maybe they should have just torn these houses down. But I'm glad they didn't just plaster over the expensive problems and then pawn them off to unsuspecting families.

The land bank owned these houses because they failed to sell at the auction. Meaning private investors didn't want them. So, if the point of the program is to put federal money into projects which benefit the neighborhood but are not viable for private capital, then, well, this is what it looks like.

There is a choice D). Mothball. This option is difficult given the scrapper climate in the city, but one could seriously secure these homes for a fraction of renovation cost w/ Stainless Steel appliances. Mothball does not just mean plywood windows.

And yes, this is what government projects where private capital dares not tread look like. What we don't know is if this effort truly 'benefits the neighborhood'. The whole purpose of these government programs is to try and engineer a solution that the market isn't doing.

I don't know all the details, but the government here didn't just pay a contractor $500k per home. A lot of the $9m no doubt went to project management. Or am I wrong here? If that's the case, it the homes may still have cost more than market renovation cost -- but the waste may not be as large as touted. [[Me, defending government project management cost -- whoda thunk.)