A Better Solution for Detroit’s Blight
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The Fiscal Times
May 30, 2014

The decline of Detroit from its once-ascendant heights has been well documented, but until the release this week of a federal task force study, we didn’t know precisely how bad things had gotten. The Detroit Blight Removal Task Force surveyed nearly all 380,000 parcels in the 139 square-mile city, and found signs of blight — fire damage, code violations, abandonment, stripped wiring or simply overgrown vacant lots — in over 84,000 of them, nearly one in four citywide. 

Blight presents enormous problems for any city. It drops property values. It attracts crime and disease. It feeds a dangerous environment — I’ll never forget the story of Isaac Dieudonne, the Florida toddler who wandered into a blighted house next door, fell in the algae-ridden swimming pool, and drowned. It creates a vicious cycle in which neighbors prefer to leave rather than live around it, leading to more blight. It can take over entire neighborhoods and make renewal impossible. This incredible Tumblr of Google street views of Detroit houses over time vividly depicts the deterioration. 

Related: Detroit’s 60-Year Decline into Bankruptcy Hell 

There are several ways to deal with blight, but the Task Force, convened by an Obama Administration initiative last September, focused exclusively on one: removal. According to the report, the city should demolish 72,000 structures over the next five years, with the goal of fully eliminating blight by 2019. 

This project would cost the city $850 million and as much as $1 billion more if you throw in the flattening of commercial structures. Right now Detroit only has $87 million guaranteed for this purpose, with another $368 million pending the resolution of its record municipal bankruptcy. 

Given all the problems Detroit faces, you can reasonably ask whether blight removal, while important, reflects the best use of resources, especially considering that it will likely pull from city pensioners or other priorities. But with most of the structures targeted for removal being single-family homes, the fact that Dan Gilbert, CEO of Quicken Loans, serves as the task force’s co-chair should raise some eyebrows.

Obviously, eliminating almost a quarter of a city’s housing stock will have a decided impact on its mortgage market, whether that just reduces supply or if those properties get redeveloped into higher-priced housing. Gilbert’s company stands to benefit, and he has been at the forefront of virtually every effort to revitalize the city, effectively becoming its de facto CEO. He already owns over 8 million square feet of real estate in the city, and it’s easy to see mass blight removal as a way to increase its value. Gilbert makes no apologies for wanting to do well by doing good, but recommendations he helped generate should maybe come with a warning. 

Related: Detroit Faces $2 Billion Price Tag to Combat Blight 

There are other problems with the task force report. While they engaged in a very impressive data collection project, with volunteers “blexting” (texting about blight) virtually every property in the city, they did not extend that to determining the underlying ownership of the properties. The task force admits they are “committed to identifying existing owners of blighted properties,” implicitly revealing they don’t have that information yet. 

Banks’ Role in Blight
Uncovering ownership will prove an arduous task, which is critical to obtaining the legal authority to demolish 72,000 properties. Over the past several years, banks initially pursuing foreclosure have engaged in “walkaways,” abandoning the foreclosure process, either because poor record-keeping makes them unable to prove ownership, or because it’s simply not worth obtaining the property (homes in Detroit routinely sell for as low as $500).

Banks that walk away from homes do not have to notify the city, or even the borrower. Subsequently, borrowers who leave their homes in advance of foreclosure find themselves still responsible for property tax payments and maintenance.

It turns out that bank walkaways have been the most prevalent in Detroit, according to a 2010 Government Accountability Office report. It’s impossible to know how many of these homes are actually owned by banks, or falsely attributed to erstwhile homeowners, without a similarly diligent house-by-house study. 

Related: Why Detroit Won’t Have a Pittsburgh Renaissance 

In addition, endless transfers of mortgages during the securitization bubble of the mid-2000s, and the fraudulent paperwork used to make them, clouded title on hundreds of thousands of properties nationwide, including many in Detroit. In the Isaac Dieudonne case mentioned above, the family could not determine who actually owned the vacant house where the child drowned. To this day, speculators trade properties in Detroit so fast that finding the actual owner becomes challenging.

The task force seeks to get around these nightmare scenarios by streamlining the process for “nuisance abatement” and city hearings to take over properties, in some cases changing the definitions of what properties would be considered “dangerous” to get a favorable judgment. But nearly 17,000 of the properties that the task force cited as having “indications of blight” are occupied. Removing abandoned properties is one thing; applying the same techniques to take possession of occupied homes invites abuse.

The task force says that blight removal “should be balanced with due process rights,” but their recommendations sound similar to laws on “fast-track foreclosures,” which a recent National Consumer Law Center report finds could lead to unnecessary evictions, even if homeowners make good-faith efforts to stay in their homes. A recent fast-track foreclosure law in Michigan speeds up eligible eviction proceedings to 30 days, triggered by as little as an inspection of the outside of the house, or if the homeowner refuses consent for an interior inspection. “It’s built on the premise that homeowners are staying there and damaging property,” said Lorray Brown of the Michigan Poverty Law Program. “Actually they’re trying to desperately keep their house.”

Related: Detroit Tries Culture Shock Therapy to Woo Investors

A broken tax foreclosure system presents additional problems for Detroit. In Michigan, counties can auction off properties if the property taxes have not been paid for three years. Because Detroit property taxes are among the highest in the nation, and because of high state-imposed interest rates on unpaid property tax, this has become a blight-creation machine. The city already holds 84,000 properties, most of them vacant lots, as a result of tax foreclosures, with another 76,000 on the way. These properties are seven times likelier to be in need of demolition, according to the task force, and a whopping 94 percent of the structures are considered blighted. 

While the goal of the auctions is to recover lost property tax revenue, in reality nobody but real estate speculators wants to buy the properties. Speculators purchase them for as low as $500 and effectively squat on them, never paying taxes and just buying them back if they get foreclosed upon a second time. While speculators wait for redevelopment, the property stays vacant and blight grows worse. A citywide reassessment may lower this burden, but right now, it’s a vicious cycle chewing up homes, and making blight elimination nearly impossible. 

The task force does recommend fixing the tax foreclosure system. It called for the lenders to pay the cost of demolition in many cases, up to $15,000. It correctly noted that penalties for blight in Michigan do not apply to buildings taken by banks in foreclosure, and recommend removing that carve-out. 

Rehab, Not Removal
You have to ask, though, whether spending nearly $2 billion solely to remove all these structures represents the best solution. The report says only 430 jobs would be created with these funds. Surely, Detroit’s economy could use better bang for the buck. 

Rehabilitation of abandoned properties to get the city’s 20,000 homeless people housed might actually end up far cheaper that having them use expensive city services like hospitals, law enforcement, and the courts. The Detroit Land Bank Authority, the lead agency for anti-blight activity, appears far more interested in rehabbing homes that can be salvaged over demolition. 

Related: Detroit Faces $2 Billion Price Tag to Fight Blight 

And in a city where the population has shrunk from 1.8 million to 700,000, and blight is concentrated on the city’s northeast and northwest sides, reducing the giant footprint (you can fit all of Boston, San Francisco and Manhattan borough into Detroit), a key point of emphasis for new mayor Mike Duggan, may be preferable. 

The task force was mute on this point, and on what to do with hundreds of thousands of vacant lots that the city has no funding to maintain. An ominous proposal near the end of the report, about putting together a real estate investment trust for blight elimination and rehabilitation, could offer one answer — that this may simply pave the way for land speculation at a higher level. 

Blight is definitely a cancer, and renewing a once-great city requires making it presentable and livable. The task force could potentially set in motion great things for Detroit. Residents should share in that effort, rather than being bystanders in a scheme that reduces their rights and creates a city untailored to their needs. 

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David Dayen has been writing about politics since 2004, first as a blogger and then as a freelance journalist. He is a contributing writer to Salon.com, and also writes for The New Republic, The American Prospect, The Guardian (UK), Politico, The Huffington Post, Alternet, and more.