In a nutshell
- Although Detroit’s residential vacancy rate has declined by 11 percentage points since 2010, it still represents about one in every five houses sitting vacant.
- The most drastic dip occurred in the last two years, and in that time the city’s property tax revenues have seen a 3.7 percent increase.
- The rise in occupied housing indicates a growing demand in the city’s housing market. It also indicates a growing resurgence of neighborhoods that have long been waiting to feel a comeback post bankruptcy.
Vacant buildings and abandoned properties are a familiar part of the Detroit landscape. These structures adversely affect neighborhoods, undermine residents’ quality of life, and diminish the value of nearby properties. They also can cause fiscal damage to the city, reducing local tax revenues while costing the city millions for policing, removing dumping and overgrown vegetation, and demolishing blighted buildings.
The percentage of unoccupied dwellings at any point in time is known as the vacancy rate. It represents the number of vacant housing units divided by the total number of housing units. It is a positive sign that the vacancy rate has been trending down for many years. Interpreting why it is declining requires analyzing the many factors that contribute to a changing numerator and denominator.
Many moving parts contribute to the number of vacant houses — the numerator. Some residential vacancies may be part of the housing market. People and families move, voluntarily or involuntarily, on a regular basis. Some vacant units for sale and for rent may simply reflect transition between owners or renters.
Some vacant units have resulted from families walking away from houses because there is no viable owner. The cost of maintenance, the tax burden, or other causes may lead to its abandonment.
Previously vacant properties have become reoccupied when the Detroit Land Bank sells houses, families buy and rehabilitate the properties, or investors rehabilitate properties to lease to renters.
At the same time, the city has been demolishing vacant houses for many years, thus reducing the total number of houses in the city and shrinking the denominator.
In this blog, we highlight the drop in Detroit’s residential vacancy rate and analyze the potential causes for that dip. We assess the relationship between the city’s blight removal efforts and the plummeting rates of vacancy, as well as other factors that may be contributing to this influx of residents.
The Impact of Vacancy and Blight
The longer a house sits vacant, the greater the risk that it will deteriorate and potentially be vandalized or stripped. The amount of vacancy and blight can provide many insights on the conditions of a neighborhood.
The vacancy rate can be an indicator of the physical condition and market demand for housing. A high vacancy rate could indicate decline, destabilization, and blight that may contribute to declines in housing values. Vacant properties can significantly reduce the value of the occupied properties close to them, adversely affecting the ability of nearby homeowners to build equity in their homes.
The causes of vacancy and exodus from Detroit are many, including high property tax rates, high auto insurance rates, sub-par government services, poor schools, and crime. The prevalence of tax foreclosures from overassessed and overtaxed properties in the last decade also contributed to the high vacancy rate. According to the U.S. Census Bureau, upwards of 100,000 housing units were vacant from 2010 to 2016.
Reduced demand for housing was exacerbated by the Great Recession, causing many people to walk away from their houses. The exodus of city residents and abandonment of houses was reflected in a plunge in the market value of residential properties.
Vacant houses often become abandoned houses, and the impacted property loses its appeal for potential residents and businesses, in addition to driving out current residents. As the market value of houses in the city dropped, there was a lack of demand in the city’s housing stock and this created a feedback loop on the rates of residential vacancy as the abandonment of homes would continue to drop property values, and the drop in property values would decrease property tax revenues. Between 2010 and 2020, the city’s property tax revenues declined by 16.6 percent.
The chart below provides a snapshot of Detroit’s residential property taxable value in relation to the city’s residential vacancy rate from 2010 to 2020.
Detroit’s Residential Property Taxable Value and Vacancy Rate, 2010-2020
Source: City of Detroit, OCFO CAFR; U.S. Census Bureau
Since 2014, there has been a steady decline in the city’s vacancy rate. From 2010 to 2020, the vacancy rate declined by 11 percentage points, with the number of vacant housing units decreasing from 105,317 to 55,638. As the vacancy rate drops, the city’s residential property taxable value is gradually increasing.
Even more striking about the data trend is the drastic drop in the vacancy rate between 2019 and 2020, where we see an 8 percentage point decrease. Comparatively, the city’s property tax revenues have seen a 3.7 percent increase between 2019 and 2020. Part of this could be attributed to the decline in the residential vacancy rate.
Even though the residential vacancy rate has steadily declined since 2010 the city’s vacancy level remains high in comparison to the metro region. As of 2019, Detroit’s residential vacancy rate was 26 percent, while in Metro Detroit it was 6.5 percent. In 2020, almost one in every five houses in Detroit sat vacant.
Detroit’s Affordable and Growing Housing Market
In recent years, thousands of Detroit homes that were once vacant have now been reoccupied, reducing blight and increasing investment in residential property. It is a promising trend as the city continues its post bankruptcy resurgence, and economic recovery from the COVID-19 pandemic. However, the reasons for this drop in vacancy are not quite clear yet.
One reason for the decline in residential vacancy could be attributed to an influx of residents from the suburbs into the city. Detroit is an affordable and growing housing market. A robust housing market marked by rising prices, high demand and low supply might have driven residents from the suburbs to move into the city where inventory is available for comparatively low prices.
Residential home prices in Detroit are exceptionally low compared to surrounding suburbs. Detroit is one of the most affordable cities in the region, with an average sales price of $77,217 in 2020 and $102,478 in 2021. The most recent residential statistics for Metro Detroit show that in 2021 the average sales price for a home was $273,763. In 2019, the median household income for Southeastern Michigan was about $61,926, while in Detroit it was $30,894.
Detroit provides an affordable option for residents whose wages and annual incomes may not be increasing at the same rate as home prices. Between 2020 and 2021, average home prices in the region increased by 16.4 percent. During that time, average home prices in Detroit increased by 32.7 percent.
In 2021, Detroit marked an 11 percent increase in the number of home sales over 2020. However, between 2020 and 2021 sales were down 8.8 percent across the metro region. Individuals might have been drawn to the relatively affordable homes in the city with the knowledge that they can make or save money on their investment.
Proposal N and the Cost of Blight Remediation
Part of the dip in vacancy also could be attributed to the city’s blight remediation program as it has contributed to the revitalization of neighborhoods. After funding blight remediation with federal funding for many years, the tightening of federal restrictions on the use of reallocated funds from the federal Hardest Hit Fund (HHF) program forced the city to seek an alternative funding source. Two years ago, Detroiters passed Proposal N authorizing the city to borrow money to remediate blight. Proposal N provides the city with money to expedite the timeline of its blight removal project.
Because vacancy rates and blight are directly related, blight removal becomes critical to the economic health of any municipality. When blight increases, vacancies increase. Cities have a handful of tools to handle blight including demolition efforts, remediation, and prevention.
Proposal N authorized the city to sell $250 million in unlimited tax general obligation bonds to remediate blight. The program focuses the city’s blight removal efforts on demolishing and reusing blighted single-family homes. The borrowing will be repaid through Detroit property taxes over 30 years. With interest, bond repayments are estimated to cost between $450 million and $490 million.
The original proposal pledged $160 million of the $250 million to demolish 8,000 homes. The remaining $90 million was dedicated toward an additional 6,000 to 8,000 properties to be secured (i.e., salvaged), amounting to about $12,166 per structure.
As of March 2022, the city has spent $28.9 million of the $250 million, completing 1,486 demolitions and stabilizing 353 properties. While blight removal has proven to be very costly, it has been theorized that the cost attributed to harboring blight, such as consistently sending officers to patrol blighted properties or the loss in tax revenue as a result of resident and business flight, greatly outweigh the cost of blight remediation.
The remediation of blight helps to rebuild neighborhoods as property values increase and residents’ quality of life become better due to a cleaner and safer environment. This attracts investment and more residents to move into neighborhoods, occupying homes that may have once been vacant.
Widespread vacancies and abandonment have a perverse effect on neighborhoods. The process of neighborhood decline accelerates when vacancy and blight are not addressed. For this reason, Detroit’s continued rise in occupied housing indicates a growing demand in the city’s housing market. It also indicates a growing resurgence of neighborhoods that have long been waiting to feel the upswing of Detroit’s comeback post bankruptcy.
The city’s blight removal program seems to be paying off as the vacancy rate has dramatically decreased and taxable values have increased in recent years. While it is hard to fully attribute this decrease in vacancy to blight remediation, the efforts the city has made to clean up abandoned properties and lots has had some influence on attracting residents to occupy homes that were once vacant.
Blight remediation helps to beautify neighborhoods and in a robust housing market with growing prices and low inventory, Detroit’s housing stock may prove to be a more affordable and practical option for potential owners and renters. This could also explain the dip in vacancy rates as residents from outside (or within the city) move into homes that were once vacant. If this trend continues, the city can expect to see its tax base grow which will prove to be beneficial in the long run.