The average cost of rehabbing a home bought for $1000~$2000 say is $50,000. Have a look at the website:
http://www.buildingdetroit.org/
The 'Rehabbed and Ready' (http://auctions.buildingdetroit.org/RehabbedAndReady) homes demonstrate the transformation from a $1000 to a $50000 property.
To my eyes this approach closely matches the 10% target described in the article, and seems to be a smart way to build a tax base.
A street in Detroit can go in a downward spiral within months. All it takes is one bad apple (home) that gets boarded up or goes down in flames near your investment and your purchase becomes a super high risk gamble, most probably with a very unhappy ending.
Add the high property taxes, completely out of touch with the current values of the properties in such neighbourhoods. And don't forget the back taxes from previous owners that you're often required to pay.
You lure people with a limited income, attracted by the low auction prices, force them to invest a significant sum to renovate a property to code within a limited time frame, saddle them with a mortgage and then you slap them with high taxes.
I'm not saying investing in such properties in Detroit is a bad move, you can make a lot of money with it, but it's not for the inexperienced or someone without a buffer to overcome setbacks!
You can make a decent profit on these, but not in a home flipping sense. You have to become a landlord. You are in it for the cash flow from renting it out.
My father in law does this in Baltimore. He'd make a lot of money if he wasn't so bad at rehabbing the places. He spends too much, makes them too nice, and can't rent them out for any more than the going market rate. Best house in the ghetto isn't worth shit. If he just did the bare minimum he'd be doing pretty well. And if the area ever gentrifies, he'll make a fortune.
One trick is to get Section 8 housing vouchers. That makes sure you are always getting at least some of the rent.
The downside is that you are basically a slum lord. He has to go and knock on doors for rent.
It's definitely not passive income--like renting a condo to working professionals can be.
We don't live in Detroit but bought 3 properties for 40k each with about 18-20% yields. The renters aren't the best (they're paying 800 in rent because they can't afford an 8k downpayment), but they're great investments.
Regarding the notion of 'high risk' neighborhoods. See above point - risk is proportional to occupancy. Occupied structure, reduced risk. Rental unit with fallow periods - high risk.
The elephant in the room here is also Race. Race does not correlate to risk or a 'High risk neighborhood' - this notion is perhaps the most insidious and hardest for Capital to overcome - if it ever will be - in which case these supposed 'High Risk Neighborhoods' or 'Bad Apples' will always be labelled as such and avoided. (Incidentally I see this paradigm shift - to be the core argument of the article - albeit approached obliquely)
Regarding neighboring houses - A street in Detroit, if it can go in a downward spiral, typically already has, the city is currently in the process of demolishing blighted structures, and a property owner has a reasonable expectation that if a nearby house has-gone or goes 'galley-west' the city will take it down and offer the lot to neighboring property owners or list it for-sale on the website linked in the original comment.
The taxes correlate to the assessed value of a property, these are slightly unpredictable. However, the city is reassessing property values this year, working under the supposition that realistic valuations that people can actually pay are a better approach. Basically - I agree, lack of confidence in tax-rates is a bad thing, and it's a good thing the city is working to deal with this.
The program is basically just a mechanism for a bunch of buyers to signal intent.
While it worked in some parts of the city, other parts of the city had entire blocks bulldozed. Kind of like what happened in SF when they blew up buildings to stop the fire.
Looks like the argument the article is trying to make relates to zoning, traffic design, and density - which I don't think is changeable by people taking advantage of this house flipping program.
That could be quite a large amount depending on the back-taxes and liens that could have been placed on the property.
When I look at the map, it looks like most of the city is lightly in the red and it has several extremely red areas which may drive most of the losses. What is driving those? Are they stadiums or large government facilities that aren't taxable? Or maybe middle-aged neighborhoods with severe drainage problems that can't withstand a hurricane?
What’s driving the difference between the lightly red and the green areas? Some of the comments here propose that people in those neighborhoods aren't asking for improvements or the infrastructure is naturally cheaper. It could also be a city-favorable tax to liability balance since the larger portion of the green area is rented and thus doesn't get a homestead property tax exemption or growth cap.
"Putting in street trees, painting crosswalks, patching sidewalks, and making changes to zoning regulations" might put a city in better financial position if they think gentrification makes sense and is possible. But that by definition is not a social justice argument.
Of course, the bump in those home's property tax revenue wouldn't drive other revenue like investing in making a downtown more upscale would: more local homeowner values (and property tax revenue), corporate business tax revenue, sales tax and tourist revenue. He brushes off simplistic arguments but his argument is simplistic as well - and he advocates for squeezing the poor! The poor would rather have lower taxes than a bump in home value.
> We see this trend everywhere we've done a model. On a per acre basis, neighborhoods that tend to be poor also tend to pay more taxes and cost less to provide services to than their more affluent counterparts. How is this possible? Some of my planner colleagues will say it is density..
Then he goes into how it's cheaper to service but really offers no argument about the density especially as it relates to the 2 photos he proposes as evidence (the 1.1M poor block vs the 618k affluent block - it's actually 803k on his other article). Clearly there are more structures and less parking on the poor block. The poor picture has this: "two liquor stores, a pawn shop, a barber shop, a bankruptcy attorney, a campaign headquarters, a retail establishment, a cafe and a vacant building." How can he shrug off density?
> Poor neighborhoods subsidize the affluent; it is a ubiquitous condition of the American development pattern.
Bold claim with no evidence. Perhaps he meant to say "poor neighborhoods are more profitable on a property tax basis than affluent neighborhoods"
However, most arguments for dense development are EXTREMELY relevant to this ratio - the idea being that dense development is cheaper, per unit population/economic activity, to build infrastructure for. Maybe it shouldn't be viewed as an end in itself, but it is a good heuristic.
[1] http://www.strongtowns.org/journal/2015/12/16/best-of-2015-d...
Please don't take this comment as advocacy for a higher tax rate, simply recognition of the financial structure; you get what you pay for, or in the case of muni bonds what other people think future residents will pay for.
Usually not. Low population density and far from city center is usually enough to make it very "red". See also, suburbs.
I didn't understand the argument either. I've lived all over the country and doubt the poor neighborhoods in Chicago (where I'm from) and Detroit (where I once lived) do their respective cities much good from an investment point of view (whatever that means). Another thing to consider is that poor people use social services, and anyone who has been to Oakland will tell you a lot of those services live downtown. As a former resident of downtown Oakland, I'd say this rule wouldn't hold up there either.
Still, we should invest in poor neighborhoods because it's the right thing to do for the environment as well as the residents of said neighborhoods.
I'd argue the government should start the process by cleaning up brownfield and greyfield (obsolete shopping centers) sites and consolidated land for ease of development. The initial costs are certain to be higher but the returns are larger (in many cases).
Well, check the data, don't just "doubt it". It means that neighborhoods on the bad side of town tend to generate enough tax revenue to pay for their road, electric, and sewer maintenance, whereas neighborhoods on the good side of town tend not to.
The argument is that improving neighborhood infrastructure will tend to improve housing values; that's noncontroversial. Increased housing values implies increased property tax; that's axiomatic. Poorer neighborhoods are denser, so a single neighborhood intervention has more impact on a larger number of properties. The poorer neighborhoods tend to be cheaper to improve. And the poorer neighborhoods have more upside: it's difficult to improve the value of properties that were recently designed and built to maximize real estate value.
I did pull it up on Google maps and visited a few random addresses on the Sherrif's property tax lookup page, etc. The orientation of the red-green graphic doesn't seem to be north-south and it isn't clear what is driving the large red areas.
Increasing the valuation of a property doesn't magically change a resident's ability to pay taxes. Best case scenario is that the areas where low wage earners live shift around a bit. Worst case scenario is that people are pointlessly taxed out of their homes and the city gets a reputation of being unaffordable.
This. I've struggled to phrase why most developments seem so terrible, or sterile, or what-have-you, while the areas that developed over time seem so much more... Alive? Valued? This is an amazing way to phrase that difference - it's possible to invest yourself in places that are not at peak value.
The result is extremely jarring in ways that people can't easily articulate. Something in your brain is noticing the architecture is trying to hide what is basically a big empty box of steel and glass, with areas in between that kinda sorta seem like nice open space but doesn't seem to ever actually be used for that. It's just there to look at and think it's usable.
Of course such things are extremely subjective. One thing I have noticed that bothers me with new developments are trees. They are always short, because they are still young. Hence they have no character, yet. Storms haven't ripped them, they haven't been shared when they cover someone's window from sunlight. And if course they are always perfectly aligned and usually rounded with a square made of tiles. Everything measured and inch perfect.
Interestingly this bothers me with new developments, that everything is too neat and measured. At some places I appreciate it.
When they went to see Levittown for it's 50th aniversary they were unable to find a single house that had not changed in a major way.
Even the worst architecture and urban planning will be reprocessed over time.
He chose to build half-houses that are literally unfinished roofs on one side. Over time, people were encouraged to build the other half as they saw fit.
[1] Episode 231 - Half a House - http://99percentinvisible.org/episode/half-a-house/
I never knew it was possible to put brick or stonework on a house built with wood siding until living in that neighboorhood. A couple of the owners apparently worked construction putting in brick siding and they bricked up their own houses in a few days. Another guy covered his house in white stonework rather than just the limited front elevation with a chair rail high stonework.
In addition, today is even worse because now we have Homeowners Associations which prevent any evolution because it might affect the price of someone's house in a downward direction.
> We're talking about things like putting in street trees, painting crosswalks, patching sidewalks, and making changes to zoning regulations to provide more flexibility for neighborhood businesses, accessory apartments and parking.
His argument is that small civic investments in infrastructure in poor neighborhoods have a good chance of increasing the average property value of the whole neighborhood and thus increasing the tax base. Not all 'investments' will work, but they are relatively inexpensive so you can experiment and replicate the ones that do work across the whole city.
That raises the question: Property taxes increasing won't by themselves increase people's incomes. Since they aren't trying to affect jobs(per-capita income) and explicitly mentioned density is not the issue(population), then the only thing left is to change the demographics(transfer wealth in).
Investment could be meant more broadly(like education or healthcare), but he explicitly disclaims that at the start("What I'm going to present here is pure dollars and cents. "). Somehow it doesn't seem right to advocate for city policy that swaps out the existing citizens for more profitable ones, though I suppose the existing citizens do come out ahead.
i think you're underestimating just how little money "people without money" have. a widely quoted statistic [http://www.theatlantic.com/magazine/archive/2016/05/my-secre... e.g.] is that half the country couldn't raise $400 in an emergency.
Except maybe the stock market with a 30 year horizon.
whoa.
what about the person whose spouse died last year, and whose house burned down over Christmas?
^^ she's a 1st order connection, but not my tenant.
how about the aunt who's got +2 mouths to feed & house after her sister died?
^^ again, real human, facing real serious cash-flow problems.
there are so many ways to wind up in a hard way, necessitating low-cost housing.
as a student at university, I did significantly more damage to rental properties than I lost deposits to repair... intentionally. and I smoked a lot of pot.
I'm not disputing your point that most individuals in a place to afford the time and money to 'get into property' are going to want to avoid situations that represent a financial risk to them.
however, I was totally put off by the war zone characterization.
Why?!
However, I believe it will be at least 20 years before my local municipality will be able to learn from any of these lessons. The planning meetings for any type of development are dominated by those with the time to go to them mid-day: retired people that set up the initial zoning and are dead set against any potential change. The same person who is super concerned about negative impact on property values will in the next sentence rail against those wanting to do development for their "greed."
I really gotta move out of California...
It's not a California thing. As part of my job, I spend a lot of time presenting at public meetings and in my spare time I do a fair amount of advocacy (for various causes) which also results in a lot of time in public meetings. I've been in public meetings in small rural villages and large cities across 30 states. And I've observed the same thing - the folks that attend those meetings tend to be dominated by those affluent enough to take the time to go.
The starkest example of that are public meetings in poor cities where projects will affect large minority areas and yet 95% of the attendees will be affluent folks from the outer suburbs. It's not that the affected folks don't care, it just that when the meeting is held at 2pm or 5pm or even 6pm on a weeknight, they have jobs to go to and they can't make time to attend. The most diverse, well-attended public meetings I've been to have always been held on Saturday afternoons.
> It had the final say on legislation and the right to call magistrates to account after their year of office. In the 5th century BC its members numbered about 43,000 people. It would have been difficult, however, for non-wealthy people outside of the urban center of Athens to attend until payments for attendance were introduced in the late 5th century. It originally met once every month, but later it met three or four times per month.
Today, "ecclesiastical" is associated with a centrally managed church, but the term is rooted in a democratic assembly, with payment for attendance enabling representation of more segments of the citizenry.
In my experience, people will be engaged if you engage them. Typically what happens in these scenarios is somebody gets a grant and decides to do something, and they put a public posting in the janitors closet in the women's room in the city hall basement.
My city is doing a refining effort where they publicly over faux-communicate. There's lots of meetings with brainstorming, fancy pictures, etc. Than a preliminary document dump written in jargon. Then, days before the decisions get made, there's a Friday night drop with the "decisions".
Then people find out at the last second if they are lucky. At that point all decisions are made. Partial public financing is typically lined up. The only way to effectively get any voice is to rally around some bullshit regulatory point.
Key quotes:
"It's wealth that is shared throughout the neighborhood." -- about as anti-gentrification as you can get.
"American cities can make low risk, high returning investments while improving the quality of life for people, particularly those who have not benefited from the current approach." -- indicates to me that the investment he's speaking of is of cities into existing areas, not developers demolishing and recreating neighborhoods.
The trick would be to apply the improvements to every poor neighborhood at the same time so you don't create winners and losers and upset the balance in the housing market, but this is basically impossible.
Consider what is happening in some of the rougher parts of downtown San Jose: people are moving in to the existing houses and either renovating them or living in them as-is. Few developers are involved in most of these areas so far -- they are simply the last remaining "affordable" areas in the city, but not for long. Home values in those neighborhoods have appreciated about $100k per house over the past several years.
This is also going to happen in Oakland, and it is probably happening already in some neighborhoods.
The bottom line is that gentrification does not have to be driven by developers. When demand far outstrips supply as it does in the Bay Area today, the wealthy end up in direct competition with the poor over the same housing, and the wealthy will simply outbid the poor.
Affluent neighborhoods are built in a way that cannot be easily improved upon.
I very much doubt a legislator or city council could muster money from Us to spend on places where Those People live, even if it makes financial sense. I would love to be wrong about this.
The problem is, most of the money (a staggering 80%) goes to pay salaries !!! They aren't helping the poor or the rich, they're helping themselves.
Those areas are "profitable" because they are using fewer services.
If you invest more there, they would no longer be "profitable" -- and increased investment may not increase future "profits."
I think this essay falls down in part because it's nonsensical to use these private industry terms when discussing municipal governance. I want my city to concern itself with equity and quality of life - not which citizens are most profitable.
However, a more usual pattern is for the three existing businesses to be torn out and replaced with a single retail space that's up to code, beautiful, clean, modern, and a financial drain on the city.
The goal of a city shouldn't be to increase land values -- it should be to increase the affluence of residents.
With the way automation is taking jobs I wouldn't be surprised if these kinds of low income housing investments turn out to be solid cashflow producing investments.
Here in Italy the oldest part of the city are usually the most popular and most expensive.
We don't have THAT much land over here and regulation are pretty strict on what you can build and where...
If you look at US cities that share this trait, e.g. NYC or Boston or Chicago or even SF, the oldest parts of the city are very expensive and prestigious, and have been for several centuries.
Also, "white flight" never happened in Italy, while many US cities were affected last century.
There's no reason to expect that the city spending more money on a neighborhood increases any tax returns.
The article is making the observation that it's much easier and cheaper to improve bad neighborhoods than rich ones. Painting crosswalks and planting trees is cheap, but rich neighborhoods already have those things.
If poor people can't afford to live in nice neighborhoods, and we transform their surroundings into nice neighborhoods, they won't be able to afford to stay. Richer people will move in and drive up the prices.
These effects are likely to be amplified in towns with high demand for housing and low supply.
Looking at it this way gets at the heart of the problem with this way of thinking. Can I suggest a counter point?
Solve the systemic issues that prevent low-income people from seeking good housing, rather than advocating to keep them in their place.
A land tax instead of a property tax seems to be the way to go. This would avoid punishing people from improving their property.
"No sh*t, it's called gentrification and has been around forever. Thanks for reinventing the wheel."
