The Pillaging of Detroit
(Source: Unsplash.)
In Detroit, Michigan, one in four properties throughout the city experienced foreclosure for not paying property taxes from 2011 to 2015. To this day, tax foreclosures continue to transpire as the city grapples with an ever declining population.
Wayne County, which encompasses Detroit, has aggressively pursued foreclosure on tax-delinquent homes in the city over the past two decades. “Tax foreclosures are incredibly pervasive in Detroit not only because of the city’s widespread poverty and long, steady loss of population, but also because they provide a short term cash infusion to a local government desperate for revenue,” says Strong Towns Senior Editor Daniel Herriges. “Either interest on repayment or the sale of a foreclosed property brings cash into the county’s coffers—at the cost of the further deterioration of once-stable neighborhoods.”
Part of the problem lies in the tax assessment process. A local advocacy group, The Coalition for Property Tax Justice, states that multiple studies have found that Detroit’s local government has systematically inflated properties to be worth more than 50% of their value, causing homeowners to be overcharged in their property taxes. They argue that this unjust practice is completely illegal, because according to the Michigan constitution, no property should be assessed at more than 50% of its value. With home values being misconstrued on paper, making property taxes exponentially higher than they should have been, residents crumbled under the pressure and many could not afford to pay their bill. (Property tax inequities aren't unique to just Detroit, it’s a nationwide issue which Strong Towns is helping to uncover through the Just Accounting for Health Project.)
Tax foreclosure in Detroit has only worsened the city's problem of blighted blocks, empty lots, and desolate neighborhoods. The city's larger decline is a wicked problem decades in the making. According to Strong Towns President Charles Marohn, “The auto-centric style of development undermined the resiliency of the city, tearing down social, political, and financial strength that had made Detroit one of the world's greatest cities. Once this strength was undermined, once Detroit became a fragile city, it was only a matter of time.”
While the city’s tax foreclosures help balance the government budget, they aren’t the only entity reaping in funds from the poverty-stricken city of Detroit.
Strong Towns member Alex Alsup has been researching and capturing the decline of Detroit throughout the last decade as he simultaneously works to help keep Detroit residents in their homes. Using Google Street View images, he created GooBing Detroit, a website that follows the chronological story of once-thriving homes turning to rot and sometimes disappearing though demolition. We showcased some of his work here.
Most recently on his Substack, Alsup took some time to revisit his older research and went on to answer a new question: How much wealth (in present-day home values) transferred from Detroit homeowners who lost their homes in tax actions (2014–2016) to owners outside the city?
Alsup followed the money by tracking property tax bills and discovered that a total of 18% of all citywide properties belong to owners outside the city limits. That’s 66,838 properties out of a total 381,265 that are not locally owned.
The Detroit Land Bank owns about 90,000 properties in Detroit, and when you remove public ownership from the equation, the percentage of Detroit properties owned outside the city is actually closer to 23%. These numbers do not account for the bills that were mailed to the properties but aren’t owner occupied. So, really, this percentage may turn out to be larger with further research into indicators that could suggest outside ownership (Alsup notes avenues like recent tax foreclosure or ownership by an LLC).
This graph below shows a glimpse into the history of tax-foreclosed properties that are owned by non-residents of Detroit. From 2014 to 2016, 9,700 owner occupied foreclosed Detroit homes were sold and 70% (6,810) of them were sold to non-resident owners for an average price of $5,556.
A home on the east side of Detroit that sold in the 2015 tax auction for $2,700. Multiple listing service (MLS) data shows the home sold in February 2022 for $82,500. Assessment data shows its tax bill is now mailed to an address in Miami Beach, Florida.
A home on the east side of Detroit that sold in the 2015 tax auction for $2,700. MLS data shows the home sold in February 2022 for $82,500. Assessment data shows its tax bill is now mailed to an address in Miami Beach, FL.
Between 2019 and 2022, 579 of the 6,810 non-resident owners sold their properties for an average sale price of $53,000. That’s nearly a tenfold return on investment without assuming they were renting the property out during time of ownership. This means that within these three years, through homeowners losing their homes at tax foreclosure auctions, a little over $300 million dollars of wealth was eventually exported from Detroit homeowners to owners outside the city.
And the worst part of all is that many of the persons whose homes were foreclosed and sold qualified for a 100% property tax exemption due to poverty. This has been a needless plunder of wealth that could have belonged to Detroit residents but now does not. The county has been forcing people from their homes to keep the budget balanced, and the longer they continue to play against the community in this way, the more strenuous the recovery will be.
In an article published earlier this summer, Alsup noted that there have been some steps taken to revive the city: “In tax foreclosure, Pay As You Stay was passed into law, creating a way for homeowners in poverty to retroactively cancel the majority of their property tax debt. The Detroit Tax Relief Fund was created to pay off whatever remained. A right to counsel ordinance was passed by Detroit’s city council and a fund established to pay for representation of tenants facing eviction. New, better-funded repair programs will address more housing conditions.”
While tax foreclosures provide the city with a temporary revenue boost, it won’t last forever. The city should continuously be focusing on building wealth and capacity within neighborhoods, versus continuing policies that encourage wealth to be extracted from the community.
If you’d like to read Alex Alsup’s full research report, check it out here.
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