AKRON, Ohio—The national media often reports about housing prices in red-hot real estate markets. There are stories aplenty about affluent newcomers displacing existing lower-income residents, and driving up housing prices, rents, and property taxes to stratospheric heights.
This is not the case where I live in Akron, and in many other cities around the Great Lakes. We have the opposite challenge: large numbers of lower-income, working-class urban homeowners, living in deteriorating homes, with no foreseeable prospects for property appreciation.
In San Francisco, ordinary working-class people don’t own houses. In a city like Akron, they do—and many of them simply do not have the money to properly maintain them.
The median sales price of a house in Akron is about $64,000. Many houses routinely sell for less than $40,000.
Sometimes people hear about these low prices, and they talk about what a bargain they are. Most people who say this have never owned an older house, and have unrealistic expectations about what it actually takes (in terms of time, money, and effort) to properly maintain it.
People have proposed many well-intended, but unrealistic, solutions to the problem of low-property values in urban neighborhoods with older houses that are falling apart.
It has been suggested to me, on more than one occasion, that indebted, college-educated Millennials could be lured back to the city by selling them these old, poorly-maintained houses for $1.00, and having them “fix up the house.”
People who say this do not have a realistic idea of what “fixing up” an old house entails—neither in terms of the scope of the rehabilitation work that would be required, nor in terms of the level of skill, time, and/or money needed to do the work.
Even in a low cost-of-living market like ours, $40,000 houses are generally not a “good deal.” They are almost always a liability. They are a ticking time bomb of deferred maintenance. They are an albatross.
The median housing unit in Akron was built in 1952. Over 36 percent of all of the housing units in the city were built before 1940. In a high-demand metropolitan area with a lot of in-migration, these older residences would command a higher price. But in our low-demand metropolitan area, with net out-migration, and negative growth sprawl, the overabundance of older housing can present a real challenge.
When a neighborhood gets to be around 50 years old, it reaches a crossroads. The patina of newness has completely worn off. The houses are now well into their second life-cycle of exterior maintenance, and many are in need of significant and costly interior updates. Will existing homeowners be willing to shell out the money for needed upgrades, or will they sell cheap, and move on to greener pastures? The answer to that question depends a lot on anticipated resale value, and can determine the fate of the neighborhood.
Most of the neighborhoods built in the 1910s, when Akron gained 140,000 residents in one decade (and was America’s fastest-growing city), reached this crossroads back in the 1960s. Some of these neighborhoods, like Highland Square, remained attractive and in high demand. Many others did not, and began a long period of protracted decline. This is exactly the point at which the city hit its peak of 290,000 residents, and then began to inexorably lose population.
The houses built during our next big wave of residential construction, in the immediate aftermath of World War II, later reached this half-century crossroads right before the Great Recession began in the early 2000s. These neighborhoods, which generally commanded higher property values, were hit hard by the collapse of the housing market. Some have rebounded. Many have not.
Approximately 25 percent of Akron’s neighborhoods are comprised primarily of homes that are valued at $100,000 or more. In these neighborhoods, where older houses have weathered the recession, and generally held their value, there are still strong market incentives to rehabilitate the structures.
For example, there is a house right around the corner from me, here in Wallhaven, that sold for $12,025 in 2015. It was a foreclosure, and the entire foundation needed to be replaced.
Someone bought it, replaced the basement, put on a new roof, new siding, new windows, built a front porch, and sold it for $135,000 in 2018.
Why? Because houses in this neighborhood typically sell in the $125,000 to $150,000 range. If property values were less than that, that house would have been demolished. Instead of a nice-looking, renovated Cape Cod, we’d have an overgrown vacant lot.
In 75 percent of Akron’s neighborhoods, that rehabilitation scenario would never have happened. The house would have moldered away, probably in the hands of an absentee owner, until it was condemned and demolished at public expense.
In 2017, Akron Mayor Dan Horrigan created a 15-year, 100 percent, citywide property tax abatement program. I am proud to say that it is attracting new residents, investors, and home builders to Akron. In 2015, only 10 houses were built in our entire city. Today, there are over 1,000 housing units in some stage of development.
Many of the proposed new houses are in the $180,000 to $250,000 range. The median sales price of a house in Akron is around $64,000. Some people hear about the price of the new houses, and instead of seeing it as a good thing, they see it as a bad thing. They compare a brand-new $200,000 house to a 100-year-old house that costs one-third of that, and say “This is Akron…that’s way too much!”
People who say that don’t understand real-estate market economics. They are comparing apples to oranges. When you factor in what it costs to properly maintain an old house, with its unforeseen headaches down the road, and compare that to an initially maintenance-free new house, with a property tax abatement, the price differential disappears. A $200,000 house built in 2019 suddenly doesn’t sound so expensive, and a $60,000 house built in 1919, with a huge backlog of deferred-maintenance doesn’t sound so cheap.
In many ways, people here in Akron live in a bubble, when it comes to housing costs. In most places in this country, and in our neighboring suburbs, it is completely normal to see new houses and apartments built. It happens all of the time. It is completely unremarkable. It is how communities revitalize themselves. It is how populations grow, and old housing is replaced.
A Personal Testimony
Example: My house, built in 1947, is 72 years old. I bought it back in 2003, and have owned it for nearly 16 years. It is currently valued by the county fiscal office at around $100,000.
I’ve tallied-up what I’ve spent on renovating it over the past 15 years. For the purpose of this calculation, I’ve stuck to core systems, exterior features, and structural elements, and eliminated expenditures on things like new appliances, interior cosmetic improvements (painting, flooring, wallpaper, etc.), and routine plumbing and electrical work.
I’ve divided the remaining expenditures into three categories: absolutely necessary, and could not wait; optional for the near-term, but could not have waited much longer; and completely discretionary/nice thing to have.
These are the expenditures that were absolutely necessary and could not wait:
· Replacement of the sewer line under the basement floor
· Replacement of the structural columns holding up the beam
· Replacement of the hot water tank
· New roof (complete tear-off and replacement of shingles)
· Masonry work on the chimney to stop water leakage
Total cost: $19,200
These are the expenditures that were optional at the time, but could not have waited much longer:
· New high-efficiency furnace
· New 200-amp electrical box
· Bathroom renovations
· New windows
· New siding
· Reconstruction of the front entryway
Total cost: $36,700
These are the expenditures that were nice things to have*:
· Sunroom addition
· New concrete patio
Total cost: $37,500
(*The sunroom and patio replaced a wooden deck that was 20 years old and beginning to rot. While the sunroom addition was optional, I would have needed to tear out the deck and replace it with something – new landscaping at a minimum, or another deck, so not all of this cost was entirely optional.)
All told, I have spent $93,400 on improvements to this house over the past 15 years. This works out to an additional $502 per month, above what I was paying in mortgage, taxes, and insurance. When you add all of that together, the total monthly cost works out to $1,439.
My house is attractive and in extremely good shape, but keeping it that way has come at a significant price.
I mentioned that my house is valued at just about $100,000 by the county fiscal office. Now, let’s compare that to a newly-constructed house in the City of Akron, valued by the county fiscal office at $200,000.
The brand-new house will have a much higher mortgage payment, but it will have no initial maintenance costs, and it will also receive a 100-percent property-tax abatement, meaning that the owner will pay no taxes on the value of the dwelling for the next 15 years.
The total monthly cost for the brand-new house? $1,444. Which comes out to exactly $5.00 per month more than my 72-year-old house.
So, really a lot of this comes down to what a person is looking for. The older house will cost you less money up front, but it is also going to cost you a lot more money in maintenance and home improvements. The older house will have more “character” (hardwood floors, wood-burning fireplace, crown molding, plaster walls, etc.), but it will also be a lot more hassle to maintain, in terms of time (if you’re handy, and if you have it), or in terms of money (if like me, you’re not handy, and don’t have the time).
The thing with home maintenance is that ultimately, none of it is optional. You can let it slide for a while—until you can’t. At that point, you either figure out how to pay for it, or if you can’t, or won’t, you walk away, and it becomes your community’s problem.
The other thing that people forget about routine home maintenance is that it doesn’t scale with the value of your home. Putting a new roof on a $1,000,000 house in San Francisco is not going to cost you that much more than it would cost you to put a new roof on a $40,000 house in Akron. The difference is that the roof in San Francisco might represent 1 percent of the value of that property, while the roof in Akron might represent 25 percent of the value. It doesn’t take many repairs in a market like Akron before you’ve eclipsed what the house is even worth.
Like many of my fellow Akronites, I have a passion to see older houses rehabilitated in this city. But the most effective way for that to happen is for housing to become more valuable in this city. And that starts with new construction that gradually raises comparable prices and makes rehabs of older houses more cost effective.
For what it’s worth, I love my older house, and personally prefer owning an older house to owning a newer one.
But what I happen to personally prefer is irrelevant. And, as I hope I have demonstrated, keeping my house in good shape has come at a steep price—a price that many people may not be prepared for.
My house is around the 80th percentile in terms of home values in Akron. What about the houses at the 20th percentile? The return-on-investment for making these types of improvements just isn’t there. That’s why thousands of houses in this city are sitting vacant and abandoned, and are on their way to the landfill.
The median sales price of our housing needs to increase. I’m not talking about it going into the stratosphere. I’m talking about it going from $64,000 to something like $90,000. A $90,000 house is still extremely affordable, even for a working-class household with a modest, but reliable source of household income.
The first step to revitalizing a city like Akron is to understand supply and demand, and how it drives the real estate market. Without that understanding, the decline will continue.
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.