Ypsilanti: consider cash bounties for vacant/foreclosed home rehab

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I'm going to make a suggestion that sounds absurd on its face, in Ypsilanti's current heated battle over cutting costs vs. raising taxes: the city should hand out $10,000 cash grants to people who purchase, fix up, and occupy vacant and foreclosed homes. Why? Because it's a net fiscal gain for the city. (Obviously, this should be treated as a starting point for discussion, rather than a fine-tuned proposal.)

As a timely case study, let's look at the properties owned by local landlord David Kircher, whose entire portfolio was recently put on the market by the trustee appointed in his bankruptcy proceedings. I understand most (perhaps all?) of these properties to also be subject to tax foreclosure by the county for unpaid property taxes.

There's been a lot of work over the last decade on the fiscal impacts of foreclosed houses; one of the more recent and rigorous (and not pay-walled) is a 2011 paper by the Cleveland Fed that is titled, appropriately for Mr. Kircher's scenario, "The Impact of Vacant, Tax-Delinquent, and Foreclosed Property on Sales Prices of Neighboring Homes". In that paper, the authors find that each vacant and/or tax-delinquent property within 500 feet of a home lowers its sale price (value) by 1.5%-3%, assuming a low or moderate level of poverty and vacancy in the area. This price hit is a combination of excess supply effects and disamenity (nuisance) effects. (The low/mod assumption is appropriate for our case--the paper is working in Cuyahoga County, so "high-vacancy / high-poverty" refers to the parts of Cleveland that resemble the worse parts of Detroit or Flint, and nothing in Ypsilanti compares.)

I'm going to take some Sunday-morning shortcuts in the GIS analysis side of this, and calculate the property value impacts on properties within 500 feet of Mr. Kircher's properties as if each nearby property was only affected by a single Kircher property--many are actually within range of 3 or 4--as well as limit the impacts to the 18 Kircher properties that are in the city limits and in his name (as opposed to an LLC). These assumptions mean my calculations will be on the conservative end, and the actual property value impacts are likely significantly higher.

On the map below, Mr. Kircher's 18 properties that are in his name, in the city, vacant, tax-delinquent, and listed for sale by bankruptcy trustee are shown in red, with 500 foot buffers in thin red lines. Properties in aqua are the affected neighboring properties: there are 766 of these, covering a total of 167 acres.

The total taxable value of these properties (in 2009--I unfortunately don't have 2012 data on hand) was $47,238,218. Again, I'll take a conservative estimate, and limit my analysis to only "residential" properties, omitting any commercial or industrial property and any property with 5 or more apartments. This leaves us with 598 affected residential properties, with a combined $33,637,159 in taxable value. Since the city has lost about 17% of its total taxable value since then, we'll apply that factor and say the current taxable value of properties affected by Mr. Kircher's properties is more like $27,918,842. Imprecise, but we'll use it.

Using the 1.5%-3% impact proposed by the Cleveland Fed and the conservative estimates mentioned, Mr. Kircher's properties are therefore responsible for erasing between $419,000 and $838,000 in taxable value in surrounding residential properties.

Using FY2011-12 millage rates, this comes to (rounded):

  • $8,000 - $16,000 in general operating revenues

  • $2,600 - $5,200 in police/fire pension millage revenues
  • $1,100 - $2,300 in sanitation millage revenues
  • $1,900 - $3,800 in street reconstruction debt millage revenues
  • $400 - $800 in transit millage revenues
  • $2,100 - $4,100 in the proposed Water Street debt retirement millage.

All told, by the property value impacts proposed by the Cleveland Fed, Mr. Kircher's properties are responsible for extinguishing between $16,170 and $32,340 in City of Ypsilanti tax revenues every year. As mentioned, this does not include any impacts on commercial properties, does not include his properties owned in the name of an LLC (but also vacant and tax-delinquent), and does not include the fact that most of the affected neighboring properties are within 500 ft of multiple of our subject properties. We could probably double the tax revenue impacts of his properties if we loosened some of these assumptions.

This measurement also doesn't include the diminished taxable value of Mr. Kircher's properties themselves in their current state vs. a habitable and inhabited state, does not include any costs such as board-ups, police calls, ordinance enforcement, chargebacks from the County Treasurer for unrecovered taxes, etc., or any of the "intangibles" such as the impact of these properties on the community's image, nor does it include any of the tax revenue impacts to the county, library, or schools. Various studies peg the total local government costs of a vacant and foreclosed home at $5,000-$34,000 annually.

As a policy prescription, then, as mentioned at the top of the page, I recommend that the city offer a cash grant of $10,000 to anyone who purchases one of these properties and repairs it to habitability (as measured by issuance of a certificate of occupancy or rental housing certification) by the end of the calendar year. Even if we're only looking at tax revenues, the city can expect between a 10% and 40% annual return on this investment. When the various other costs are included, the city could look at this investment paying off in 2 years or less.

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If this idea were piloted

If this idea were piloted and adopted it could potentially have tremendous impacts across the state too -- Flint & Detroit being 2 other municipalities obviously facing the same issues from vacant & foreclosed homes.

antecedents

Detroit's already got this, in the form of the LiveDowntown program, targeted at employees of major downtown private employers, like DTE, BCBS, Quicken, and Compuware, and the LiveMidtown program targeted at Wayne State, DMC, and Henry Ford Health System employees. These programs are funded by a combination of the private employers involved & some of the foundations working in the area. Early evidence suggests they are making a difference in supporting the housing market in the target areas, in terms of increased occupancy, rising rental rates, etc. The Kalamazoo Promise is a variation on the theme, with a more post-hoc incentive structure.

The only thing new here is the assertion that it wouldn't actually cost that much to the city, relative to the costs of the vacant/foreclosed property.

Some cautions as far as trying this elsewhere--the scope of the foreclosure/abandonment problem in Detroit and Flint is probably well beyond the reach of something like this, and the abandoned properties there in much worse condition than anything we've got in Ypsi. This is going to work best in concentrated doses, as a "neighborhood stabilization" strategy: if the local foreclosure rate is too high, or if too large an area targeted, probably this wouldn't have as much impact--e.g. it might be less effective in Ypsilanti Township. Finally, the fiscal returns depend on having a certain level of property values and a certain tax rate in order to make the math work out: a lower tax rate or a lower average property value would reduce the fiscal benefits--the property values in River Rouge or Ecorse probably wouldn't yield much return (though might also require less incentive to trigger purchase/rehab).