The voices of Urban Institute's researchers and staff
March 6, 2017

Housing market revival is key to Detroit’s economic recovery

In last month’s State of the City address, Detroit mayor Michael Duggan launched a suite of targeted housing, neighborhood, and community revitalization initiatives, confirming the pivotal role that housing will play in Detroit’s inclusive economic recovery.

A healthy housing market builds current residents’ wealth, attracts new residents, stabilizes neighborhoods, and generates revenue for local government. Although Detroit’s housing market has been plagued by weak demand, an oversupply of aging and dilapidated housing stock, and a lack of sufficient income and access to capital for potential homebuyers, emerging trends and innovative practices are moving the city toward greater economic recovery. 

Detroit’s housing market today

Recent housing market and demographic data show some promising trends.

  • The rate of Detroit’s population loss, a major source of the city’s decline in housing demand, slowed from 25 percent between 2000 and 2010 to only 3 percent from 2010 to 2015.
  • Between 2014 and 2015, the population decreased just 0.8 percent. In certain census tracts, the population even increased.
  • The city’s average home sale prices and rents continue to increase, signaling a better match of the housing supply with demand.

However, much of this improvement is limited to a few neighborhoods, such as Midtown and Downtown. In 2015, the city saw 653 home purchase loan originations, more than three times that of 2012. But that remains only 10 percent of new mortgages originated in 2001, demonstrating the severity of credit constraints in the city. Housing and neighborhood challenges persist, especially in neighborhoods with high concentrations of vacancy and abandonment.

African Americans make up more than 80 percent of Detroit's population. In 2000, their homeownership rates (52 percent in Detroit) were above national averages (46 percent). Homeownership was an important part of wealth accumulation for the African American middle class.  

But African Americans were particularly hard hit during the foreclosure crisis because of the high number of subprime loans in the city, and their homeownership rates fell to 42 percent in 2014, the same as the national rate.

Greater declines in housing values along with lower credit scores translates into a longer pathway to homeownership and a greater demand for rental housing.

How Detroit is addressing housing challenges—and what it can learn from other cities 

In response to these and other housing challenges, Detroit lenders, policymakers, and nonprofits have designed new mortgage products and other strategies. 

  • In partnership with the Home Depot and with financing through Quicken Loans, the Detroit Land Bank Authority’s (DLBA) Rehabbed and Ready Program repairs vacant DLBA-controlled housing stock. Homes are then sold to buyers through realtors, returning units to productive use.
  • The Detroit Home Mortgage program is a collaboration of five financial institutions (Flagstar Bank, Huntington, Chemical Bank, Independent Bank, and Liberty Bank), the Community Reinvestment Fund, Kresge Foundation, and the Ford Foundation, which increases the amount of livable stock in the city by bundling purchase mortgages, home improvement loans, and loans to cover the appraisal mismatch.

Other cities are addressing similar housing market challenges, and some of these approaches may prove useful for Detroit’s recovery.  

Not all these approaches will fit Detroit’s context, but elements could be tailored to strengthen existing programs or develop new strategies.

What’s next for Detroit’s housing market?

Whether the next generation of housing interventions are conceived locally or modeled from other cities, one program in isolation will not fix Detroit’s housing market. Solutions demand a multifaceted approach sensitive to Detroit’s diverse neighborhood conditions, market characteristics, and legacy of racial and economic segregation.

Like many cities, Detroit has a complex housing ecosystem of programs, policies, and agencies that often focus on only one dimension of the market or address one aspect of housing need. To accelerate the market recovery, Detroit needs to align and connect current housing efforts. Leaders can draw inspiration and insights from other local collaborations such as Detroit Future City and the Blight Removal Taskforce.

Given this track record, we recommend forming a “housing compact” that would focus local private- and public-sector leaders, community development nonprofits, and philanthropists on one or two major housing goals. This ongoing forum—the Detroit Housing Compact—would function similarly to The Preservation Compact in Chicago or Cleveland’s Vacant and Abandoned Property Action Council. No matter its leadership, operations structure, focus, or sources of support, the Detroit Housing Compact would develop concrete actions, leverage existing resources, and coordinate policies and programs across sectors.

In a short time, Detroit leaders have made laudable progress to stabilize and revitalize neighborhoods and reinvigorate city government. A natural evolution of this progress would be a collective effort—through the Detroit Housing Compact—to guide Detroit on its path forward to a healthier housing market.

People stand in line to board a bus before touring one of twelve homes being auctioned off in the East English Village neighborhood April 27, 2014 in Detroit, Michigan. The city of Detroit and the Detroit Land Bank will auction off 12 homes starting May 5. One home will be auctioned off per day with an opening bid of $1,000. Photo by Joshua Lott/Getty Images.

SHARE THIS PAGE

As an organization, the Urban Institute does not take positions on issues. Experts are independent and empowered to share their evidence-based views and recommendations shaped by research.