More Cities Considering Bulldozing Foreclosed and Abandoned Homes

More Cities Considering Bulldozing Foreclosed and Abandoned Homes

If you have been following the real estate market at all for the last few years, you know that home prices have plummeted since the market peaked in 2006/7. On average, home values are 25 percent off their peak values. In fact, according to an article from the Boston Globe, we are on pace to eclipse the home price declines that occurred during the Great Depression. Simply put, the situation is not good.

There are many reasons that home prices are declining, but the chief reason is supply and demand. Many parts of this country overbuilt during the bubble years. There is a 10.7 month supply of homes on the market right now (compared to about six months of supply in a normal market). There are also millions more houses in shadow inventory that have yet to come to the market. There is also a paucity of demand for homes, due in part to continued high unemployment, and due in part to the acceleration of home purchases into the spring months as a result of the first time homebuyer tax credit. Economics 101 tells us that when supply outstrips demand, prices will fall accordingly. Price stability will not return to the housing market until the excess supply has been dealt with or until prices fall to match demand.

There is anarticle today on Bloomberg by Brian Louis that details the efforts of some midwestern cities to raze some of these excess houses. In many ways, these Rust Belt cities face unique challenges not seen in other parts of the country. Part of the problem is the erosion of the manufacturing base in this country, which has caused many of the traditional sources of employment (i.e. auto manufacturing, steel manufacturing, etc) to leave these areas. As a result, unemployment is especially high, and the populations of many of these cities have been steadily shrinking since the 1970-80s.

I touched on this topic back in May when Detroit undertook a plan to bulldoze significant numbers of blighted houses. The city of Detroit has 51,000 homes for sale, a population of 911,000, and unemployment rates that are between 25 and 30 percent. Barring some sort of economic miracle, there is not going to be an influx of people looking to move to Detroit and occupy these homes. In a lot of ways, the only sensible choice is to bulldoze them (whereas places like Phoenix might reasonably anticipate future growth and just sit on excess homes).

Cleveland is another city that is considering destroying blighted homes. Gus Frangos, the President of the Cuyahoga Land Reutilization Corp was quoted in the Bloomberg article as saying:

"You really have to bury the dead right now. You have to remove blight. It's unfortunately on a grand scale".

I wouldn't normally advocate for the destruction of homes except as a last resort. Blight drags down everybody's property values. Boarded-up houses are eyesores, are unsafe, and are often associated with crime. In cities that have no reasonable hope for significant population growth in the near future, bulldozing may be the only option.

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