Has Targeting Specific Detroit Neighborhoods for Public Investment Resulted in Higher Home Values?

By Martin Lavelle

In this blog entry, I look at whether targeted public investments in certain Detroit neighborhoods has helped produce higher homes values in those parts of the city. Before going over the results of such efforts, first let me explain why some have considered targeted investments to be a worthwhile approach to addressing some of the city’s problems.

In 1950, Detroit’s population reached its peak of 1.8 million.(1) At that time, Detroit’s land area of 140 square miles seemed appropriate for its population. Since then, Detroit has suffered a significant loss of population (a well-documented long-term trend). The U.S. Census Bureau’s 2016 estimate put Detroit’s population at 672,795.(2) Detroit’s population hasn’t been that low since the 1910s (over that decade, it more than doubled from 466,000 in 1910 to 994,000 in 1920).(3) Nowadays, Detroit’s footprint seems to be far too large for its number of residents. Moreover, dense clusters of population can be hard to find in Detroit’s 100-plus neighborhoods.

Over the past decade, the Detroit city government has undertaken many efforts to promote population density in the city’s neighborhoods. In 2010, then-Mayor Dave Bing announced the start of the Detroit Works Project—an effort to come up with both short- and long-term plans to improve the city. Included in this project was the provision of financial incentives for residents to relocate to more stable neighborhoods in order to deliver city services more efficiently.(4) After that part of the initiative was vociferously opposed by city residents, Mayor Bing decided in 2011 to focus on a couple of smaller initiatives. First, Detroit police officers were provided financial incentives to relocate to the Boston–Edison and East English Village neighborhoods.(5) Second, later in the year, Mayor Bing designated three Detroit neighborhoods as Detroit Works “demonstration areas,” which would receive increased city services. Those three demonstration areas were Bagley, Boston–Edison, and Hubbard Farms.(6)

So, for over six years now, the four neighborhoods of Bagley, Boston–Edison, East English Village, and Hubbard Farms have received increased investments from the city government. Arguably, the increased government service delivery and/or police presence should have made those neighborhoods more desirable places to live. And the greater desirability of these areas should be reflected in their having higher home values now. In this blog entry, I examine the changes in home sale prices in those four neighborhoods since 2011 (when Mayor Bing began his initiatives). I also explore changes in home sale prices in the neighborhoods adjacent to the four that received investments from the city since 2011 to see if targeted neighborhood funding has made a difference.

Profiles of Detroit demonstration neighborhoods(7)

For those unfamiliar with Detroit neighborhoods, I provide here brief profiles of the four neighborhoods of interest. For the sake of simplicity, I will refer to all four as “demonstration neighborhoods” (though technically speaking, East English Village was only targeted with incentives to bring in more police residents and not designated by the Bing administration as a “demonstration area”).

Bagley

The Bagley neighborhood is located in northwest Detroit, bordered by 8 Mile Road to the north, McNichols to the south, Wyoming to the west, and Livernois to the east. The neighborhood anchors are Sinai-Grace Hospital, Marygrove College, and the University of Detroit Mercy. Across Livernois Avenue from Bagley are the even more stable, relatively higher-income Sherwood Forest and Palmer Woods neighborhoods, which border the Detroit Golf Club. After targeted by Mayor Bing for demonstration area funding in 2011, the Detroit Future City plan highlighted northwest Detroit and the Bagley neighborhood as a primary employment area with the potential for larger-scale job growth.

Boston–Edison

Boston–Edison is bordered by Woodward Avenue to the east, Linwood Avenue to the west, Glynn Court to the north, and Edison Avenue to the south. This neighborhood was established shortly after the turn of the twentieth century, after Detroit’s elite made the trek north up Woodward Avenue from Brush Park.(8) Boston–Edison is situated about halfway between struggling Highland Park and the northern edge of vibrant Midtown. Known for its wide, tree-lined avenues and large green public spaces, the neighborhood includes the Motown Mansion, the property built and lived in by Berry Gordy, Jr., when he ran Motown Records.(9)

East English Village(10)

East English Village was originally established in northeast Detroit as five ribbon farms in the 1800s. However, it wasn’t until the 1930s when home construction and migration into the neighborhood accelerated. The neighborhood’s boundaries are those that were laid out in the 1800s: Harper Avenue to the north, Mack Avenue to the south, Outer Drive to the west, and Cadieux Road to the east. East English Village is situated near the Grosse Pointes. A new secondary school, the East English Village High School, was constructed there in 2012.(11)

Hubbard Farms(12)

Hubbard Farms is situated in southwest Detroit, and is bordered by Vernor Highway to the north, Interstate 75 to the south, Clark Avenue to the west, and Grand Boulevard to the east. Hubbard Farms is named after Bela Hubbard, a geologist who became a lawyer and real estate developer. The majority of Hubbard Farms was developed in the late nineteenth and early twentieth centuries.(13) The early residents of Hubbard Farms were industrial workers who worked in Detroit factories.(14)

Background

Before diving into the analysis, I want to provide some sense of the state of Detroit’s housing market. To this end, I present details on the types of transactions conducted in the demonstration neighborhoods and outline Detroit’s home assessment process.

Table 1. Summary statistics of home purchases in select Detroit neighborhoods, 2010–15
Note: REO means real estate owned, and refers to property owned by a lender (typically, a bank or government entity) following an unsuccessful sale at a foreclosure auction.
Source: Author’s calculations based on data from CoreLogic Real Estate.

Table 1 provides some color on home sales in Detroit. Not surprisingly, all but a few of the transactions involved existing homes. Additionally, the majority of the sales involved foreclosed homes (real estate owned, or REO, sales) and was paid for with cash. Interestingly, a higher percentage of home sales involved mortgages in the demonstration neighborhoods than in the nondemonstration neighborhoods. A further look at the mortgage data reveals that, overall, home sales involving mortgages made up a higher percentage of transactions in the demonstration neighborhoods after the city government filed for bankruptcy (in July 2013) than before it did.(15) A greater share of home sales involving mortgages and a lower percentage of foreclosed sales in the demonstration neighborhoods relative to the nondemonstration neighborhoods may show the degree of stability already present in the former before Mayor Bing’s initiatives began in 2011. Also, a deeper dive into the transaction data reveals that sales rose in all but one of the neighborhoods analyzed in the period 2010–15 after Detroit entered into bankruptcy protection in July 2013.

Before sharing my full analysis of the demonstration neighborhoods, I will describe the assessment process that determines the market values of homes and its implementation in Detroit. All Detroit properties are required to be assessed annually. And 30% of Detroit properties require annual on-site visits.(16) Each property is assessed a reasonable market value based on local real estate market conditions. The study of housing market includes the inspection of new construction, analysis of market conditions, and observation of neighborhood advantages and disadvantages. Market conditions take into account property, neighborhood, and homeowner characteristics. Property characteristics include the age of the house, total living area, and lot size. Neighborhood characteristics consist of the number of sales, the percentage of nonresidential properties, the percentage of mixed-use properties, and other economic and social characteristics. Homeowner characteristics include whether or not the homeowner is an in-state or out-of-state owner and if the home is the owner’s primary residence.

In recent years, Detroit struggled to conduct assessments consistent with the practices outlined in the previous paragraph. In addition to the inconsistent and/or unsound practices followed by city assessors, the unhealthy local housing market contributed to the recent erratic assessments of Detroit properties. The Detroit city government was slow to react. Finally, in 2012, the Detroit Auditor General indicated layoffs in recent years and the lack of other resources contributed to the overassessments of home values.(17) However, it wasn’t until after the Detroit News reported on the overassessments in 2013 that the Michigan Tax Commission opened a probe into Detroit’s assessment process. The probe, which found that the average Detroit property hasn’t been assessed in 30 years,(18) resulted in the city’s effort to complete its first city-wide reassessment of property values since the 1950s. The probe finished earlier in 2017. The completion of the citywide assessment will most likely lower most of Detroit home market values further.(19)

Analysis

Chart 1 shows the median home sale prices in the demonstration neighborhoods versus such prices in the adjacent neighborhoods. The demonstration neighborhoods are depicted by the darker shades of colors in the graph.

Chart 1. Median home sale price, 2015: Detroit and select Detroit neighborhoods
Source: Author’s calculations based on data from CoreLogic Real Estate.

Median home sale prices of the demonstration neighborhoods were not only well above those of the adjacent neighborhoods but that of Detroit as a whole. Not surprisingly, the largest gap in median home sale prices between a demonstration neighborhood and an adjacent neighborhood is for Boston–Edison and LaSalle Gardens. As mentioned earlier, Boston–Edison was a destination for Detroit’s elite in the early twentieth century. Even during Detroit’s tougher times, Boston–Edison was still a desirable neighborhood. Meanwhile, the gap in median home sales prices between Bagley and its two adjacent neighborhoods can be explained by their respective proximity to Bagley’s neighborhood anchors (such as Sinai-Grace Hospital) and the quality of homes in each neighborhood. All four demonstration neighborhoods possess relatively strong homeowners’ associations.

Chart 2 shows the change in median home sales prices between 2010 and 2015. I use 2010 as the starting point because it is the first full year of data available.

Chart 2. Percentage change in median home sale price, 2010–15: Detroit and select Detroit neighborhoods
Source: Author’s calculations based on data from CoreLogic Real Estate.

During the period 2010–15, Detroit’s median home sale price rose 21%. Over those years, Bagley and East English Village saw home prices increase more percentage wise than the city as a whole.(20) Median home sale prices in all four demonstration neighborhoods outperformed those of their adjacent neighborhoods. Only four neighborhoods saw positive changes in their median home sale prices. Median home sale prices for three of the four demonstration neighborhoods (the exception being Boston–Edison) were higher in 2015 than in 2010 (before Mayor Bing’s initiatives began). The same can only be said of one of the neighborhoods used for comparison, Pembroke, which is south of Bagley in northwest Detroit. Despite these findings, it should be noted that the demonstration neighborhoods began the period with higher home sale prices than the neighborhoods adjacent to them.

Conclusion

The City of Detroit announced in 2011 that specific neighborhoods would be designated as demonstration areas receiving increased city services. That year, the city government also announced certain neighborhoods would be targeted with incentives for police to relocate to them. Following the implementation of both of those initiatives, the median home sale prices in what I’ve referred to as the “demonstration neighborhoods” rose through 2015, outperforming median home sale prices in adjacent neighborhoods. This fact does not necessarily mean that targeted neighborhood funding was entirely successful. The demonstration neighborhoods could still be benefiting substantially from their strong historical roots, which made them desirable before any city investments took place. Also, Detroit’s housing market conditions (e.g., fairly low sales activity with continued prevalence of cash and foreclosure sales) may have slanted the data in favor of the demonstration neighborhoods. However, one could argue these results helped persuade current Detroit mayor, Mike Duggan, to pursue similar initiatives in the Clark Park, Fitzgerald (analyzed above), and West Village neighborhoods.(21)

(1) See https://www.census.gov/population/www/documentation/twps0027/tab18.txt.
(2) See https://www.census.gov/quickfacts/fact/table/detroitcitymichigan/PST045216.
(3) See http://www.mlive.com/news/index.ssf/2017/05/detroit_population_drops_again.html.
(4) See http://www.mlive.com/news/detroit/index.ssf/2010/02/detroit_mayor_dave_bing_reloca.html.
(5) See http://www.mlive.com/news/detroit/index.ssf/2011/02/detroit_to_renovate_boston-edi.html.
(6) See http://www.crainsdetroit.com/article/20110727/FREE/110729908/detroit-works-project-to-be-measured-in-three-demonstration-areas.
(7) Neighborhood geographic boundaries were determined by the author using information from https://localwiki.org/detroit/Detroit_Works_Project, https://en.wikipedia.org/wiki/List_of_neighborhoods_in_Detroit, and https://detroit.curbed.com/2013/8/20/10206758/finally-a-complete-attempt-at-mapping-detroits-neighborhoods. The neighborhoods chosen to be compared with the demonstration areas are largely residential and are not separated by a significant natural or man-made (expressway) barrier.
(8) See https://www.historicbostonedison.org/History.
(9) See https://www.historicbostonedison.org/Musicians-&-Artists-of-BE#gordy.
(10) See http://www.eastenglishvillage.org/history.php.
(11) See http://detroitk12.org/schools/eevpa/.
(12) See http://www.detroit1701.org/HubbardFarms.htm.
(13) See http://www.detroit1701.org/HubbardFarms.htm.
(14) See http://www.detroit1701.org/HubbardFarms.htm.
(15) The City of Detroit filed for municipal bankruptcy protection in July 2013 (and officially exited bankruptcy in December 2014).
(16) See p. 6 of http://www.detroitmi.gov/Portals/0/docs/Auditor%20General/Performance%20Audits/2012/Finance_Assessment_Performance_07-2008_06-2011.pdf.
(17) See https://www.metrotimes.com/detroit/could-detroits-tax-foreclosures-be-unconstitutional/Content?oid=4522278.
(18) See p. 9 of http://www.detroitmi.gov/Portals/0/docs/Auditor%20General/Performance%20Audits/2012/Finance_Assessment_Performance_07-2008_06-2011.pdf.
(19) See http://www.detroitnews.com/story/news/local/detroit-city/2017/08/30/state-lifts-oversight-detroit-property-assessments/105130886/.
(20) When 2016 data are included, Boston-Edison falls into this category as well.
(21) See http://www.crainsdetroit.com/article/20170324/NEWS/170329889/study-detroiters-must-travel-outside-neighborhoods-for-groceries.

A Look into Changes in Home Prices in Detroit and Wayne County, Michigan, Between 1991 and 2016

By Martin Lavelle and Dan McMillen

Since the early 1990s, the housing market in Wayne County, Michigan, whose county seat is Detroit, has experienced substantial price swings. Housing market volatility has varied by municipality (and by neighborhood within Detroit). Changes in the Wayne County housing market show us which areas have thrived and which have struggled in the past quarter century or so. In this blog post, we take a look at how home prices across the county have changed between 1991 and 2016, with a focus on changes in the Detroit housing market.

Analysis of maps

We used a nonparametric procedure to estimate hedonic price indexes for each census tract (or neighborhood in Detroit) for five-year intervals throughout the overall sample period between 1991 and 2016.(1) The nonparametric procedure uses the census tract (or Detroit neighborhood) centroids as target points, and then just uses weighted least squares with more weight on sales near the target points.

Before going over each of our five maps individually, we want to highlight a few aspects common to all of them. The numbered and colored axis on the right of each map shows the five-year percentage change in home sale prices. Broadly speaking, red areas indicate relatively hotter housing markets (within Wayne County), while blue areas indicate relatively cooler housing markets. The darker a shade of red an area is, the relatively more positive (or less negative) the change in home sale prices; the darker a shade of blue an area is, the relatively less positive (or more negative) the change in home sale prices.

Each map covers all of Wayne County. Wayne County’s boundaries are the Detroit River to the east; 8 Mile Road to the north; Napier Road and Rawsonville Road to the southwest; and Oakville-Waltz Road, Will Carleton Road, and the Huron River to the south. The Grosse Pointe communities begin in the northeastern corner of Wayne County. In each map, the city of Detroit’s borders appear as thick black lines. Going west from Detroit’s city center, one would encounter Redford Township, Livonia, and Plymouth. Going southwest from Detroit’s city center, one would travel through Dearborn, Metro Airport, Wayne, Belleville, and Canton Township. South of Detroit lie Allen Park, plus the Downriver communities that include Lincoln Park, Trenton, and Woodhaven.

The two smaller areas demarcated with thick black lines within Detroit’s borders are Highland Park and Hamtramck; both cities were outside of Detroit when they were originally founded, and they decided to remain incorporated after Detroit expanded further northward in the first quarter of the twentieth century.(2) The white areas just outside of Southwest Detroit are Ford’s corporate headquarters and its Rouge River plant and associated industrial areas.

Map 1. Home price changes in Wayne County, Michigan, 1991 to 1996
Source: Authors’ calculations based on data from CoreLogic Real Estate.

In the first half of the 1990s, much of Wayne County saw increases in home sale prices. Notably, there isn’t much variance in home sale price changes in map 1. There were areas both inside and outside Detroit that experienced the greatest relative increases in home sale prices. Within the city, Midtown and northwest Detroit saw the largest positive changes in home sale prices. Outside of Detroit, the exurban areas of Plymouth and Canton Township experienced the greatest positive changes. With the exception of Dearborn, which on the map appears to be poking Detroit’s southwest border, Detroit’s first ring of suburbs experienced increases in home sale prices that were at the lower end of the spectrum of gains.

The results in map 1 are in line with Detroit’s economic narrative at the time. Detroit enjoyed an economic boom in the first half of the 1990s (following the brief national recession of 1990–91). One factor that specifically helped Detroit back then was low oil prices, which boosted sales of sport utility vehicles (SUVs) made by the Detroit Three automakers (Chrysler, Ford, and General Motors). Higher profits at the Detroit auto manufacturers had a positive ripple effect on the local and regional economies. Another factor helping the Detroit area was stable public finances. An often overlooked achievement of the 1990s was the fact that Mayor Coleman Young’s administration balanced Detroit’s budget before his tenure ended in the mid-1990s.

Map 2. Home price changes in Wayne County, Michigan, 1996 to 2001
Source: Authors’ calculations based on data from CoreLogic Real Estate.

During the latter half of the 1990s and the beginning of the twenty-first century, Wayne County continued to see widespread increases in home sale prices, though with slightly greater variance than in first half of the 1990s. Large home sale price increases were found throughout Detroit. During the late ‘90s, government payrolls were expanded, adding to Detroit residents’ disposable incomes. An increase in local government jobs, combined with the surging automotive industry and general economy, led to a sharp decrease in unemployment in Detroit: The city’s unemployment rate averaged 6.6% in 2000, a significant drop from the 1990 average of 15.0%.(3) Meanwhile, Detroit’s first ring of suburbs witnessed a slight pickup in growth in home sale prices. However, Wayne County’s exurban areas saw a modest deceleration in their rate of growth in home sale prices. Overall, the Wayne County housing market was strong throughout the 1990s.

Significant changes were made to how state and local revenues would be collected and used between 1996 and 2001. Dennis Archer replaced Coleman Young as the mayor of Detroit (in 1994) and added to city payrolls, which raised the disposable income of the city at the cost of unbalancing Detroit’s budget. Also, Proposal A, Michigan’s large school-reform bill,(4) flushed Detroit Public Schools with additional cash, adding to the district’s appeal. And state revenue sharing hadn’t been cut yet, giving city government additional resources for services. A lot of economic and fiscal factors worked in Detroit’s favor during the 1990s, most likely making positive impacts on the city’s housing market. However, the next decade would reveal the mistakes of increasing government spending as Detroit’s population (i.e., its tax base) continued to shrink.

Map 3. Home price changes in Wayne County, Michigan, 2001 to 2006
Source: Authors’ calculations based on data from CoreLogic Real Estate.

Home sale price appreciation endured through 2006 across Wayne County, though with slightly greater variance compared with the appreciation seen in the previous five-year interval. Again, the largest relative gains in home sale prices were in Detroit. Gains in home sale prices flattened in the first ring of suburbs, whereas some exurban areas saw a slight pickup in growth. From looking at map 3, one might conclude that the Detroit and Wayne County economies had stayed the course and built on the 1990s expansion. Unfortunately, that wasn’t the case. After the turn of the millennium, the subprime housing crisis began. During the early 2000s, Detroit didn’t see the massive boom in homebuilding or the surge in home values seen in places such as Las Vegas, Phoenix, Tampa, and southern California. That said, Detroit home values remained elevated as a result of the U.S. housing bubble.

After falling to a low of 3.7% in 2000, Michigan’s unemployment rate rose to 7.2% in 2003.(5) The state’s unemployment rate bounced around that rate until it began to rise again with the beginning of the U.S. Great Recession in December 2007. Many analysts have contended Michigan’s economy fell into recession sometime late in 2003, as the boom in SUV sales receded with the rising price of fuel. Then, beginning in 2005, layoffs and voluntary buyouts of long-tenured employees of the Detroit Three automakers began, helping to slow economic activity further. Simultaneously, Detroit’s economic momentum was halted. Detroit residents were already weighed down by high city income tax rates, and revenues from its local casino wagering taxes began to wane. Moreover, the city’s unemployment rate rose quickly after hitting its 2000 low; it reached 14.1% in 2004, and lingered there until late 2007.(6)

Map 4. Home price changes in Wayne County, Michigan, 2006 to 2011
Source: Authors’ calculations based on data from CoreLogic Real Estate.

After experiencing widespread home sale price increases between 1991 and 2006, home sales price decreases permeated throughout much of Wayne County between 2006 and 2011. Of all the Wayne County municipalities, Detroit suffered the most from the popping of the housing bubble. Even areas of the city that one might assume would be more stable than others (for instance, Midtown Detroit) suffered sizable home sale price decreases. The further out one went from the city, the lesser the decline in home sale prices. However, almost no area was spared. One can almost divide the map into auto-industry-dependent, blue-collar areas and relatively more diversified, white-collar areas (the blue areas were the former, the red areas the latter). Another thing to keep in mind is that outmigration accelerated during this time. Economic misfortunes, early retirements, and the aging of the population persuaded many to leave and seek residence elsewhere.

Map 5. Home price changes in Wayne County, Michigan, 2011 to 2016
Source: Authors’ calculations based on data from CoreLogic Real Estate.

The year 2011 marked a turning point for Wayne County’s economy. In that year, Dan Gilbert moved the headquarters of Quicken Loans downtown and started incentivizing his employees to live there as well. Also in 2011, Gilbert began buying downtown real estate. Now, Gilbert owns over 90 buildings downtown. The year 2011 was also when Mayor Dave Bing announced his intention to supply additional funding to certain stable neighborhoods of Detroit that were deemed “demonstration areas.”(7) The Detroit neighborhood of Boston–Edison (one of the demonstration areas) shows up in map 5 as a lighter red area (indicating it had modest home price increases). Bagley (another demonstration area) is one of the lighter blue Detroit neighborhoods (indicating a slight rebound in home values there).

In map 5, Detroit’s Downtown, Midtown, and Corktown, plus their surrounding areas, show signs of life. As we mentioned, Dan Gilbert was the catalyst for downtown investment. And it turns out that Midtown Detroit, Inc., was the catalyst for Midtown investment. In 2011, Midtown Detroit, Inc., Detroit Medical Center, Wayne State, and Henry Ford Health Systems announced the start of the Live Midtown program, which provided monetary incentives for people to move to Midtown.(8) This program helped increase the rental occupancy rate in Midtown Detroit to nearly 100% in 2014.(9) And high occupancy rates have endured in Midtown even with the additional living capacity built over the past few years.(10) In Corktown, the owners of Slows BBQ helped draw new investment to other vacant Michigan Avenue storefronts, improving the neighborhood’s attractiveness.

Conclusion

During the late 1990s and early 2000s, home sale prices rose much more rapidly in (already relatively low-priced) Detroit neighborhoods than in many other parts of Wayne County (see map 2). However, these same Detroit neighborhoods were the areas where home prices fell more significantly as Michigan endured its one-state recession from around 2003 through 2009 and as the U.S. housing bubble burst in 2006 (see map 4).

Map 5 (which describes the five-year home price changes between 2011 and 2016) almost perfectly demonstrates the argument that there are now “two Detroits,” as public and private investments to date have helped only some parts of Detroit to revitalize and raise their home values. The areas in red are where the bulk of Detroit’s revitalization is taking place, while the areas in blue are the neighborhoods still waiting to participate in the city’s rebound. At this point, the blue areas in Detroit are vastly outnumbered by the red ones. But many public sector and private sector efforts are under way to improve the city’s living conditions, which may lead to higher home prices (and, in turn, higher tax receipts and perhaps expansions of city services to draw more people). So, in the coming years, Detroit may start to see its red neighborhoods outnumbering its blue ones.

(1) Nonparametric regressions are used when the relationship between the independent and dependent variables aren’t already known. The regression analysis from the data provided determines the relationship between the independent and dependent variables. A hedonic price index identifies price factors (the characteristics of the good itself and the external factors affecting its sale). (For more on census tracts, see https://www.census.gov/geo/reference/webatlas/tracts.html.) Details on our procedure are available upon request.
(2) For details, see https://wdet.org/posts/2014/09/19/80119-why-do-hamtramck-and-highland-park-exist-inside-the-city-of-detroit/.
(3) Author’s calculations based on data from the U.S. Bureau of Labor Statistics.
(4) See http://www.mlive.com/education/index.ssf/2014/04/a_brief_history_of_proposal_a.html.
(5) Author’s calculations using data from the U.S. Bureau of Labor Statistics
(6) U.S. Bureau of Labor Statistics.
(7) See http://www.crainsdetroit.com/article/20110727/FREE/110729908/detroit-works-project-to-be-measured-in-three-demonstration-areas.
(8) See https://www.freep.com/story/news/local/michigan/detroit/2015/11/01/midtown-incentives-boost-diversity/74014992/.
(9) See http://www.mlive.com/business/detroit/index.ssf/2014/04/with_shortage_of_housing_optio.html.
(10) See https://detroit.curbed.com/2018/2/20/17031664/report-apartments-downtown-highest-average-rent-detroit and https://www.freep.com/story/money/business/2017/02/18/detroit-apartments-real-estate/97640058/.

Comparing the City of Brotherly Love with Motown: Reflections on How to Effectively Transform Urban Economies

By Martin Lavelle

When I think of Philadelphia, the following subjects come to my mind: Benjamin Franklin, Betsy Ross, the Liberty Bell, Independence Hall, the Declaration of Independence, and the Constitution. Also, being a sports fan, I think of what a great sports city it is: There’s quite a passionate fan base for its professional teams, as well as Big 5 college basketball at the Palestra. Admittedly, as someone who works in and studies Detroit, it doesn’t naturally occur to me to compare Detroit and Philadelphia like I would Detroit and Pennsylvania’s other major city, Pittsburgh, with its historical reliance on one manufacturing sector, steel. However, as I looked more deeply into Philadelphia’s history, I found myself drawing multiple parallels between the Motor City and the City of Brotherly Love.

On September 21–23, 2016, the Federal Reserve Bank of Philadelphia, other Federal Reserve Banks, and additional sponsors and supporters convened the Seventh Biennial Reinventing Our Communities Conference. The theme of this year’s conference was how to transform our economies. The conference’s sessions covered topics such as how to increase access to capital, how to supply a greater stock of affordable housing and address workforce needs, and how to make philanthropic foundations play a more effective role in communities’ economic transformations. This conference provided an opportunity for me to learn about initiatives in other communities and compare them with developments in Detroit. This will be the first of two blog entries in which I discuss the conference and some of my own analysis inspired by it. Here I will draw some historical and current comparisons between Detroit and Philadelphia. In my follow-up blog post, I will recap the conference and compare Detroit’s efforts to transform its economy with ongoing efforts occurring across the country.

Background

As part of my usual preparation for a conference (especially when a city tour is included), I did a statistical comparison of Detroit and Philadelphia. The table below shows the statistical similarities and differences I found most interesting between the two cities.

portland-chart-1

Note: MSA means metropolitan statistical area.
Source: QuickFacts Beta, U.S. Census Bureau.

The population figures stand out for many reasons. First, it’s easy to forget that back in 1950, when their populations peaked, Detroit and Philadelphia were similarly sized cities. Nowadays, just six and a half decades later, Philadelphia has almost two and a half times as many people as Detroit. Back in the middle of the twentieth century, the population of each city made up around 57% of its respective metropolitan area. But as of last year, Philadelphia’s population share of its metropolitan area (26%) was noticeably larger than Detroit’s population share (16%) of its metropolitan area. The fact that Philadelphia’s population increased over the past 15 years boosted the divergence in population trends. Over the period 2000–15, Philadelphia added almost 50,000 people, while Detroit lost 274,154 people. In terms of demographics, Philadelphia is much more diverse. Also, a higher percentage of Philadelphia’s population has attained a bachelor’s degree or higher—thanks in part to the University City neighborhood, anchored by the University of Pennsylvania and Drexel University, and the presence of many other institutions of higher learning within the city’s limits. Given the divergence in demographics, the difference in home values isn’t surprising, but it still jumps off the page.

Philadelphia’s Financial Challenges

Like Detroit, Philadelphia has encountered fiscal challenges. And like Detroit, Philadelphia’s financial problems simmered for many years before boiling over in the early 1990s. The City of Brotherly Love became the first U.S. city to impose an income tax when it did so in 1939. (1) Philadelphia’s income tax remained in a range of 1.0% to 1.5% until the 1960s, when it started to increase, eventually reaching 3.0% in 1970 and almost 5% in 1985. (2) The increase in the city’s income tax rate was one of the leading factors in city residents deciding to leave for suburban communities. Philadelphia’s fiscal crisis peaked in 1990–91 when a structural budget deficit of $154 million was revealed, with expectations of deeper budget deficits in future years. (3) The city received financial assistance in the form of the Pennsylvania Intergovernmental Cooperation Authority (PICA). PICA sold bonds on Philadelphia’s behalf. It also required the city to adopt a five-year financial plan that had to be approved in order to gain access to capital markets and state funding. (4) Led by Mayor Ed Rendell, the city followed its five-year plan while privatizing selected services, introducing more competitive bidding for city projects, and freezing wages for city employees, all of which helped lead to Philadelphia’s recovery in the late-1990s. (5) Philadelphia also began lowering its commuter tax in 1995, converging city and suburban residents’ respective tax burdens. (6) It has been estimated that increases in Philadelphia’s city wage tax cost the city 207,000 jobs from 1973 to 2003. (7) Two separate tax commissions created in the 2000s concluded Philadelphia’s tax system was outdated and needed to be reformed. (8) In 2014, the Greater Philadelphia Chamber of Commerce released a public/private collaborative plan with the aim of organizing growth-based activity in and around Philadelphia. The chamber’s plan called for improving the city’s competitiveness, producing a well-educated workforce, creating an environment for business growth, and enhancing Philadelphia’s infrastructure. Such efforts will have a familiar ring to Detroiters too.

West Mount Airy: A Gift to Philadelphia from Detroit

The conference began with a tour of Philadelphia’s West Mount Airy neighborhood, one of the nation’s first intentionally racially integrated neighborhoods. The effort to preserve racial diversity within West Mount Airy was led by West Mount Airy Neighbors (WMAN). WMAN was founded in 1959 to deal specifically with the issue of racial integration. (9) One of the founders of WMAN was George Schermer, who tried to organize a similar effort in Detroit before coming to Philadelphia.

After Detroit’s 1943 Belle Isle uprising, Mayor Edward Jeffries formed an Interracial Commission and appointed Schermer as its director. (10) In the early 1950s, Schermer lobbied for an integrated housing development in Detroit’s west side. The development was to be called Schoolcraft Gardens. The Schoolcraft Gardens development attracted private funding and the United Auto Workers (UAW) as a partner. (11) Unfortunately, multiple forces prevented the integrated development from taking shape. First, the neighboring, all-white Tel-Craft homeowners association opposed the Schoolcraft Gardens development. Also, later on, a different Detroit mayor, Mayor Alfred Cobo, vetoed the approval of the development project. Soon afterward, the Interracial Commission was dissolved and replaced by the Commission on Community Relations, whose members would be appointed and could be removed without cause by the mayor. (12) Not surprisingly, when the City of Philadelphia offered Schermer the opportunity to head its newly created Commission on Human Relations, Schermer left Detroit. (13)

Under Schermer’s leadership, WMAN fought housing and education policies that advocated for segregation. WMAN and the neighborhood itself consisted of high-achieving, well-educated, progressively minded people, who were the demographic they looked to attract to the neighborhood. One might argue this allowed integration to work, whereas Detroit saw comparatively less educated groups across different races compete for similar jobs and economic standing, putting the groups at odds with each other.

Impressively, the commitment to diversity in West Mount Airy remains strong. Since 1980, at least 40% of West Mount Airy’s residents have been African Americans. (14) According to Sarah Zelner, who presented background information about West Mount Airy during the conference tour, the neighborhood has a strong LGBTQ presence, in addition to being diverse in terms of race and education. Efforts to maintain the neighborhood’s diversity and affirm its commitment to open dialogue include the long-running Mt. Airy youth baseball league and, more recently, monthly conversations about racial issues. In the evening of the day of the tour, the neighborhood’s main thoroughfare shut down and turned into a street fair that showcased West Mount Airy’s diverse restaurant community.

All that said, the neighborhood isn’t without its challenges. Between 1950 and 2010, West Mount Airy lost around half of its population. This loss in population has impacted the dynamics of the neighborhood in many ways, especially in terms of its educational offerings. The high school located in West Mount Airy closed in 2013—a direct result of the population loss, as well as more-affluent students enrolling in private schools in other neighborhoods. In addition, while the overall racial diversity of West Mount Airy has been maintained, African Americans have been clustering closer to the East Mount Airy and East Germantown neighborhoods, which are both predominantly black. (15) While traveling through the area, I noticed a contrast between West Mount Airy with its homes constructed of stone native to the area and East Mount Airy with housing stock of relatively poorer quality. To combat population loss and preserve the neighborhood’s identity, West Mount Airy is trying to attract more immigrants, highlighting the neighborhood’s cultural history and mixed small business community as selling points.

Gifts in Return from Philadelphia? Possible Lessons for Detroit

The background material I read on Philadelphia’s West Mount Airy neighborhood discussed housing density (as measured, for example, by homes per city block) and its correlation with racial integration. The material cited multiple studies that suggested lower housing density is more amenable to achieving greater racial diversity. (16) This might be one lesson from Philadelphia’s experiences that Detroit might want to apply as it remakes itself. The Motor City is seeking to create dense and diverse population centers within its borders, as it once had decades ago. Part of this goal is being achieved by removing blight. But as neighborhoods are reorganized, city officials may want to keep in mind how racial integration was achieved in Philadelphia and not make the housing density of newly configured neighborhoods too high. Striking the right balance between population and housing density to achieve better racial integration and higher-level services for all citizens than at present will be a challenge, but Detroit can look to some of Philadelphia’s neighborhoods for some examples to follow.

Widening the focus back to the entire city, I think the topic of city residents’ tax burdens should be explored in greater depth. As mentioned previously during my review of background material on Philadelphia and as discussed somewhat during the conference, Philadelphia has reformed its tax system in order to have the tax burden of its citizens be more similar to that of residents in the surrounding suburbs. This is yet another lesson Detroit officials might learn from Philadelphia in order to draw more people to reside within its borders. Indeed, Detroit may want to look to reform its tax system as well. When studying the tax burdens of the largest city in each state and Washington, DC, (17) the total tax payments expected from Detroiters as a percentage of their income rank in the top five. (18) When breaking down tax payments by category, Detroiters’ income tax burden ranks near the top for families making $50,000 or more, and their property tax burden is the highest among the states’ largest cities and Washington, DC. (19) While Detroiters’ sales, use, and gasoline tax burdens rank relatively low, significantly high auto insurance premiums more than make up for it. Detroiters pay more than twice as much as the next city (New Orleans) and over three and a half times more than Philadelphia, which ranks tenth. (20) Current Detroit Mayor Mike Duggan has proposed legislation that would create an auto insurance product specific to Detroit, though this proposal has its critics. (21)

Following what initiatives are and aren’t working in other cities and informing city officials and stakeholders about the results of those different initiatives is important to Detroit’s rebound. This is one of the main reasons why I attended this year’s Reinventing Our Communities Conference. The Detroit Branch of the Federal Reserve Bank of Chicago serves the function as information gatherer for the mayor’s Post-Bankruptcy Working Group, as well as the city’s group that works on affordable housing efforts. Efforts to strengthen communities in Detroit and elsewhere through philanthropic, private, and public partnerships have become more widespread in recent years. The Federal Reserve—especially the Detroit Branch of the Federal Reserve Bank of Chicago—has played a major role in bringing different types of organizations together generate solutions that will benefit those communities for years to come.

Read my next blog entry to get more details on the conference panels that I participated in.

References
(1) See p. 3 of http://economyleague.org/uploads/files/783716581668902685-the-sterling-act-a-brief-history.pdf
(2) Ibid.
(3) See p. 5 of https://www.philadelphiafed.org/-/media/research-and-data/publications/business-review/1992/brso92rl.pdf?la=en.
(4) See p. 1 of http://www.picapa.org/docs/SRFYP/SRFYP_FY16FY20.pdf.
(5) See http://www.nytimes.com/1994/05/22/magazine/mayor-on-a-roll-ed-rendell.html.
(6) See p. 31 of http://www.philadelphiafed.org/research-and-data/publications/business-review/2003/q2/brq203ri.pdf.
(7) See p. 27 of http://www.philadelphiafed.org/research-and-data/publications/business-review/2003/q2/brq203ri.pdf.
(8) See p. 15 of http://www.centercityphila.org/docs/CCR14_employment.pdf.
(9) See p. 42 of Barbara Ferma, Theresa Singleton, and Don DeMarco, 1998, “Chapter 3: West Mount Airy,” Cityscape: A Journal of Policy Development and Research, Vol. 4, No. 2, pp. 29–59, https://www.huduser.gov/Periodicals/CITYSCPE/VOL4NUM2/ch3.pdf
(10) See p. 1 of https://libdigital.temple.edu/pdfa1/Oral%20Histories/AOHWMPJZ2015030001Q01.pdf.
(11) See p. 76 of Lloyd D. Buss, 2008, “Chapter 2: City Influences Religion’s Response,” The Church and The City: Detroit’s Open Housing Movement, University of Michigan, PhD dissertation, https://deepblue.lib.umich.edu/bitstream/handle/2027.42/61748/ldbuss_1.pdf?sequence=1&isAllowed=y.
(12) See Buss (2008, p. 77).
(13) See Ferma, Singleton, and DeMarco (1998, p. 42).
(14) The share of African Americans residing in West Mount Airy was 41% as of the 2010 U.S. Census.
(15) See http://philadelphiaencyclopedia.org/archive/mount-airy-west/.
(16) See Ferma, Singleton, and DeMarco (1998, p. 41).
(17) See pp. 12-21, 24 of http://cfo.dc.gov/sites/default/files/dc/sites/ocfo/publication/attachments/2014%2051City%20Study.final_.pdf.
(18) This ranking does not apply when examining families making less than $50,000 per year. A family is assumed to be made up of two income earners and one school-age child. See p. 13 of http://cfo.dc.gov/sites/default/files/dc/sites/ocfo/publication/attachments/2014%2051City%20Study.final_.pdf.
(19) See pp. 16, 31 of http://cfo.dc.gov/sites/default/files/dc/sites/ocfo/publication/attachments/2014%2051City%20Study.final_.pdf.
(20) See https://www.nerdwallet.com/blog/studies/expensive-cities-car-insurance/.
(21) See http://www.detroitnews.com/story/opinion/2016/03/23/detroit-insurance-cut-rate-policy/82194396/.

Michigan Home Price Update

By Martin Lavelle

A recently released home price index(1 suggests that the trend of climbing Michigan home prices continues. According to the latest FHFA Home Price Index (HPI) release looking at updated home transactions through the third quarter of 2014, home prices continued to grow at a faster rate in Michigan than in the U.S. and Seventh District(2.

Chart 1: Year-over-year Percentage Change in FHFA All-Transaction HPI: Michigan, U.S., Seventh District(3, 2007-present
Michigan HPI - Chart 1 Source: Author’s calculations using data from Federal Housing Finance Agency (FHFA).

Chart 1 shows that Michigan home values are about 8% higher than last year. Home values also appear to have appreciated at a slightly faster rate in 2014 than last year. The same holds true in the U.S., with home values about 6% higher than last year. However, as was the case in Michigan, the national rate of home value appreciation appears to have slowed slightly between the second and third quarters of this year. In the Seventh District, home values are about 4% higher than last year and have continued to appreciate at a faster rate than last year.

As chart 1 shows, home values in the U.S., Seventh District, and Michigan have increased year-over-year since 2012. However, not all regions have attained pre-recession HPI levels. Based on the most recent HPI data, U.S. home values overall are 8.5% below their pre-recession HPI peak, while prices in the Seventh District are 7.0% below their pre-recession HPI peak. Michigan’s gap between current and pre-recession HPI levels is 15.2%(4. Chart 2 shows the larger gap Michigan faces relative to the U.S. and Seventh District. On the positive side, those who have purchased homes in Michigan following the financial crisis could stand to realize significant gains in home value if Michigan home prices ever return to their previous peak.

Chart 2: Annual FHFA All-Transaction HPI Index levels, 2003=100: Michigan, U.S., Seventh District(5 , 2003-present(6
Michigan HPI - Chart 2 Source: Author’s calculations using data from Federal Housing Finance Agency (FHFA).

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1) The Federal Housing Finance Agency (FHFA) publishes an all-transaction House Price Index (HPI), based on transactions involving conforming, conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac. The HPI is a weighted sales index that tracks average price changes on sales or refinancing of mortgages purchased or securitized by Fannie Mae or Freddie Mac since January 1975. The all-transaction HPI, published quarterly, includes prices from appraisal data obtained from Fannie Mae or Freddie Mac. It examines national, state, and metropolitan statistical area (MSA) data that is not seasonally adjusted.
2) The Seventh Federal Reserve District comprises all of Iowa and most of Illinois, Indiana, Michigan, and Wisconsin.
3) The Seventh District HPI was calculated by averaging each member state’s respective HPI.
4) Michigan’s all-transaction HPI peak came in the third quarter of 2005, while the U.S. and Midwest both hit their peak levels in the first quarter of 2007.
5) The Seventh District HPI was calculated by averaging the member states’ HPIs.
6) The annual averages were calculated by averaging the regions’ quarterly levels.