New Housing Can Spur Growth In Cities Left for Dead
Editor’s Note: This is part two in a two-part series on Rust Belt urban revitalization. Last week, in part one, Jason Segedy challenged the advocates of “managed decline.” Part two explores the new policy ideas leaders in Akron are using to spur growth in housing and residents.
AKRON, Ohio—There is much discussion about the decline of the Rust Belt—in capital, jobs, influence, and most especially, residents. But the one thing that America’s post-industrial Rust Belt cities do not have a shortage of is vacant urban land ready for residential redevelopment. As the population has declined over the past 70 years, tens of thousands of residential structures have gone through a long and tortuous cycle of neglect, vacancy, abandonment, and tax delinquency, culminating in demolition.
By 2017, Detroit had lost 64 percent of its peak population; Youngstown lost 62 percent; Cleveland lost 58 percent; Buffalo lost 55 percent; and Akron lost 32 percent.
The sheernumber of vacant parcels in the hardest-hit of these cities is staggering. In Youngstown, there are 23,831 vacant lots, or 38 percent of all parcels in the city. In Detroit, there are 116,378 vacant lots, or 31 percent of all parcels in the city.
The surfeit of vacant parcels is both a huge opportunity and challenge. The cost of simply managing, mowing, and maintaining these properties can be daunting, especially for cash-strapped local governments with fiscal difficulties of their own. As such, cities have ample incentive to get these properties into private hands, whether those be the hands of next-door neighbors, community development corporations, or real estate developers.
From a land-availability standpoint, the opportunities to build new urban housing are nearly boundless. In Akron, the city alone owns over 1,400 vacant residential lots, and the Summit County Land Bank owns 500 more.
Residential lots that once contained houses are not the only places that new housing can be built. Vacant school sites can be particularly attractive for residential development, given their sheer size and often strategic locations. As the enrollment in the Akron Public Schools has dropped by nearly one-third in the past 20 years, the City of Akron has begun acquiring vacant school sites, between three and eleven acres in size, for future residential reuse. Even in a mid-sized city like Akron, thousands of new houses and apartment units can be built on the land that is already under public control.
But who is going to buy these houses? To answer that question, we need to talk about the real estate market.
How the Urban Real Estate Market Works
The real estate market boils down to supply, demand, and of course, location, location, location.
Before we get into specifics, let’s establish a few things about urban housing:
- A person cannot buy a house that does not exist, so we need supply of marketable product in the city;
- People can just as easily move from a suburb to the city, as they did from the city to a suburb, provided there is demand to do so;
- Demand for urban housing has nothing to do with whether or not the city needs more jobs, because prospective home buyers already have jobs.
In many Rust Belt metros, there is an oversupply of housing in the regional real estate market. Northeast Ohio is a textbook example of this. This 12-county region of nearly 4 million residents, containing Cleveland, Akron, Canton, and Youngstown, has lost 7 percent of its population since 1970, yet it has seen massive suburban sprawl, with an additional 250 square miles of land developed for residential use over that same period. The oversupply of housing, coupled with low overall demand, leads to depressed home values, and contributes to vacant housing in the core cities, as middle-income buyers filter from older to newer housing.
But this isn’t a complete picture. While there is an oversupply of housing in the region, there is an undersupply of saleable housing in the urban market. A scrapyard technically has a large supply of cars, but none of them are drivable. A similar situation exists in the urban housing market. All of the high-quality older homes, in the desirable neighborhoods, are already occupied and cared-for, leaving behind a large stock of defunct and obsolete vacant housing which no one wants, that is slowly rotting away.
There are two other things that you need to know about housing markets in Rust Belt cities.
The first is that the housing is old. Cities like Buffalo, Cleveland, and Rochester contain the oldest overall stock of housing in the nation. These are places where close to 80 percent or more of the housing was built before 1960. Some of the old houses are great (I live in one of them), but many of them are not marketable, which is one of the reasons why these cities are shrinking. There is a self-reinforcing vicious cycle at work: Because there is not a lot of demand, new housing is not built in the city; and because there is little new housing available, no one wants to move there.
Some people love older houses and have the time, energy, and money that it takes to properly maintain them. Many others do not—and, as such, they are probably not going to find what they are looking for in the urban market. Cities which fail to update their housing stock are losing out on a huge number of potential buyers, due to lack of supply.
The second thing to know is that housing prices are low—often too low. The median value of an owner-occupied house in Buffalo is $83,500. In Cleveland it is $66,800. In Detroit, it is $43,500. And these are owner-occupied houses. Once rental properties are factored in, the average sales price for a home is even lower. Price points like this are not even close to what it costs to build a brand-new house.
When houses begin selling for less than $50,000, they have essentially reached the point where it is no longer worthwhile to maintain them. No one is going to buy a house for $10,000, and put $60,000 into renovating it, only to have it sell for $40,000. A $10,000 house is not an asset. It is a liability.
In order to unlock latent demand for urban living, the first thing that a city needs to do is to increase the supply of marketable housing. In Akron, we have tackled this problem by launching a citywide, 15 year, 100 percent residential property tax abatement program. Any new house or apartment built anywhere in the city is eligible to be exempted from property taxes for 15 years, and any renovations of existing houses or apartments, totaling over $5,000, which contribute to the taxable value of the property, are eligible to be exempted.
This powerful incentive, which helps bridge the gap between the cost of new construction and the sales price of the home, is already reaping dividends. In 2015, over 500 houses in Akron were demolished, while less than 10 were built. Since the residential property tax abatement program was launched in April 2017, there are nearly 1,000 housing units (both single-family and multi-family) that are in varying stages of development throughout the city.
Supply is one piece of the puzzle. Demand is another. People often ask me “Where are all of these new people going to come from?” My answer is “They are already here.” There are nearly four million people living within 50 miles of downtown Akron. If we build an attractive enough community, we can compete for them. The roads run in both directions.
Generating demand for urban living is a complicated topic, and space does not allow me to do it justice here. Suffice it to say that it involves doing dozens of things to make the city look and feel better—improving public safety, repairing neglected infrastructure, reforming zoning and urban design codes, improving schools, and enhancing neighborhood business districts—to name just a few.
People often mistakenly conflate housing demand with job creation. “How are you going to get more people in the city without more jobs?”, they ask. But the fact that the city needs more jobs, or better-paying jobs, is a completely separate issue. The prospective buyers of urban homes living in nearby suburbs already have jobs. Eighty-one percent of the people who work in Akron, and earn over $40,000 a year, do not live in Akron. If we reduced that number to 50 percent, the city would gain thousands of new middle-class residents.
Finally, as we all know, real estate ultimately comes down to location. Not all vacant lots are created equal. The likelihood that a new house or apartment will be built on a given vacant parcel is heavily dependent upon where it is located. Housing demand, even within the urban market, varies greatly from neighborhood to neighborhood. One of the strategic challenges for a city is to identify and successfully market vacant properties to developers—particularly those located in “middle neighborhoods”—places which are neither firing on all cylinders, nor experiencing widespread decline. These are the most important neighborhoods in a city from a redevelopment standpoint, because they are at a tipping point and will either change for the better, or for the worse.
Same Old Challenges Need New Answers
When land is available, and when sufficient market demand exists, there are still many challenges that cities which are seeking to build new housing must work hard to overcome.
One set of hurdles involves financing. Multi-family projects, particularly those that involve renovating older buildings, can encounter daunting challenges in terms of building the capital stack needed to implement a complicated project, which may include everything from conventional bank loans, to state and federal historic tax credits, Community Development Block Grant (CDBG) funds, HUD 108 loans, and Tax-Increment Financing (TIF) packages offered by local governments.
For single-family housing projects, it can often be difficult to find the comparable sales transactions required to generate the appraisals needed to secure financing for the project. Lenders and investors are often reluctant to invest in unproven urban markets, so developers and municipal governments often need to collaborate and work tirelessly to sell these projects to risk-averse lenders.
Administrative procedures can present another set of challenges. Developers must often run the gauntlet through a series of Byzantine administrative processes involving zoning, subdivision regulations, street and public utilities design standards, planning commissions, urban design and historic preservation commissions, and city councils. Even in the most cooperative and receptive municipal environment, these processes take time and resources to navigate.
Zoning codes and subdivision regulations, even in older cities with densely-developed, traditional neighborhoods, often contain suburban-style default requirements regarding setbacks, lot sizes, and parking. Similarly, civil engineers, public works managers, and fire departments frequently create street design standards that make building new neighborhoods with the design attributes of old neighborhoods, such as smaller lots, and narrower streets and sidewalks, a challenge.
Perhaps the biggest challenge of all in successfully executing a new housing project involves people.
City councils usually have the final say in authorizing the sale of publicly-owned land, and in granting zoning variances. Navigating the complex politics of a city council, and getting to know and work with the various personalities can take a lot of time, energy, and effort.
Neighbors and nearby property-owners typically have a wide variety of reactions to new housing. Some are very supportive, while others are extremely hostile.
Although you might think that people living in neighborhoods with a large number of abandoned houses and vacant lots would be thrilled to see new houses being built, you might be surprised to learn how often this is not the case. Sometimes neighbors prefer to have the vacant lot remain as green space. Sometimes they worry that the new housing will not be expensive enough, and will bring their property values down. Other times, they worry that the new housing will be too expensive, and will bring their property values (and taxes) up.
When it comes to new housing, everyone is a critic. I have heard people complain that housing which they will never live in is too dense; that housing which they will never purchase is too expensive; that housing which they will never be inconvenienced by will generate too much traffic; and that housing which they will never look at is not architecturally appealing.
After 23 years as an urban planner, I can honestly report to you that, contrary to popular belief, most people are strongly in favor of heavy-handed and draconian government regulation of private property—as long as it is someone else’s private property, and not their own.
Residents and community activists who are opposed to new housing often demonize the real estate development profession as being “greedy”, overlooking the fact that their own home was developed by a developer, built by a builder, and sold by a realtor—most likely for a profit. This isn’t to argue that every development professional is a white knight, but it is important to remember that the vast majority of people who work in the real estate and construction sectors are not the enemy of neighborhoods. Without them, there would be no neighborhoods.
When new housing is proposed, many people who don’t even live in the neighborhood will come out of the woodwork to oppose it. Sometimes they provoke class conflict by seizing upon the dubious marketing term “luxury housing.” This is especially true of far-left activists and academics, many of whom reflexively label any new development in a lower or middle-income neighborhood as “gentrification.”
The only reason that I continue to use that word is because other people use it. But it has become a useless word, and means so many different things to so many different people that it is no longer of any descriptive value.
People who describe any new market-rate housing as gentrification need to get their story straight, because they often have contradictory, and self-refuting notions about urban redevelopment. They often claim to want to see economic and racial integration, but oppose the new housing in lower-income or minority neighborhoods which could actually bring it about.
I have heard self-described gentrification opponents claim that a new housing development will be home to people who “do not look like” those who live in the neighborhood, while simultaneously calling for diversity and inclusion; and remaining blissfully unaware of the irony that they are the ones who are making stereotypical, unwarranted assumptions about the characteristics of those who will buy the new houses in the first place.
Outside activists who come into a neighborhood and invoke the bogeyman of “gentrification” are denying opportunity to nearby residents who could benefit from the new housing, discouraging private investment in places that need it, and serving to further urban decline in the community.
The Economist recentlydescribed this dynamic well:
Those who bemoan segregation and gentrification simultaneously risk contradiction…[Gentrification] boosts racial and economic integration. It can dilute the concentration of poverty—which a mountain of economic and sociological literature has linked to all manner of poor outcomes…Gentrification steers cash into deprived neighbourhoods and brings people into depopulated areas through market forces, all without the necessity of governmental intervention.
There islittle empirical evidence that gentrification has led to the displacement of people living in the urban neighborhoods of the Rust Belt. On the other hand, there is incontrovertible proof that thousands of middle-class residents are displaced by urban decline every year in these cities. A shrinking city, with a declining tax base, that is getting poorer will help no one—the poor least of all.
Alan Mallach, in his new bookThe Divided City, explains, at length, why the changes occurring in a handful of gentrifying neighborhoods in Rust Belt cities, are on balance, good for these places, and also makes the point that these positive changes are dwarfed by the economic and social decline that is happening elsewhere in these cities. We need more gentrification in the Rust Belt (if you insist on calling it that), not less.
New housing can ultimately bring equity and opportunity back to urban neighborhoods. When middle-class people return to the city, they have disposable income that can help create markets for retail and small business, which, in turn, provide basic services and job opportunities for the urban poor. Business districts and housing markets, long dormant, begin to approach at least minimum levels of functionality and attractiveness to prospective entrepreneurs, investors, and residents.
For existing urban homeowners, the gradual rise in property values, in areas with extremely depressed home prices, often means the difference between a house ultimately being rehabilitated or being demolished. So urban infill housing is not just about building new homes—it is also about creating market incentives to preserve and restore the old ones.
The construction of new houses, one at a time, may not be the sexiest of urban development topics, but it is the most fundamental. People are the lifeblood of any city. A city exists, first and foremost, for the people who live in it. Each humble house that is built forms one more building block of a great place.
Jason Segedy is director of planning and urban development for the city of Akron, Ohio. Segedy has worked in the urban-planning field for the past 23 years, and is an avid writer on urban development issues, blogging at Notes from the Underground. A lifelong resident of Akron’s west side, Jason is committed to the city, its people, and its neighborhoods. His passion is creating great places and spaces where Akronites can live, work, and play.