Detroit city officials should be mindful of the unintended consequences from cracking down on land speculators. Rather than unwarranted interference in the housing market, the city should focus on how to get out of the real estate business.
Mayor Dave Bing and other elected officials have declared war on scofflaws following published reports that speculators are buying up large amounts of the city’s vacant property and not paying taxes on the homes and lots. Corrective measures include ramped-up collection efforts on those who owe delinquent taxes and stepped-up code enforcement. He also plans to use the Detroit Land Bank — a control mechanism that allows the city to operate as a master planner — to acquire properties in advance of speculators. Also introduced is an ordinance banning the purchase of property to anyone owing delinquent taxes.
None of this is new – not the speculating or the crackdown. The city has long struggled – without success — to hold to housing blight contributors accountable using an assortment of attention-grabbing devices. Then and now, the intent was to keep parcels out of the hands of speculators who could “hold hostage” city development prospects like Mayor Bing’s ambitious Detroit Works Project. There is the potential for speculators to insist on high prices for their properties, or challenge the anticipated relocation in court with exorbitant price demands. But are these remedies or hindrances?
There’s no doubt that one of the true tragedies in Detroit is the proliferation of old, dilapidated housing stock. Every year since 1960, more houses have fallen to the wrecking ball than have been erected. The city acquired property at an accelerated rate and may be the biggest landowner of any major city in America.
City officials have always been willing to make properties available to developers who require large land parcels for major industrial or commercial projects. Few real land-use plans ever surface or come to fruition. And the housing slide has been resistant to artificial manipulation.
Minimum codes are necessary to ensure the health and safety of inhabitants, and already play a large part in the eventual cost of rehabbing vacant or neglected houses. Since the majority of Detroit’s housing stock is over 60 years old, excessive inspections and enforcement crackdowns can be perverse incentives for landlords to abandon rather than fix up houses or sell them to someone willing to do so. And more than speculators, the major impediment to owning or selling property is a property tax rate that’s the highest in the state.
Nothing competes with high taxes as a major contributor to blighted neighborhoods and erosion of the tax base than arson. Much of it occurs in older sections of the city where property values are in steep decline and where real estate activity ceased eons ago. Homeowners who, for a variety of reasons, can’t bring their properties up to code and make them suitable for rental can get far more from setting fire to the structures and collecting the insurance. The city might think twice about further igniting this phenomenon that feeds the cycle of abandonment.
Land speculation is part of the free market system. Investors speculate on everything from oil futures, stock and bonds to gold. Mayor Bing is speculating that available property will be more valuable by shrinking the city and clearing under-populated areas. If not for speculators, there wouldn’t be much of a real estate market.
The city’s poor track record of managing or marketing its vast real estate holdings won’t be fixed with more regulation. Too many Detroiters are looking for any excuse to abandon or burn the house they can’t sell.