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Tuesday, January 10th, 2012

How Demolition Came to Mean Stabilization by Rob Pitingolo

[ Since I know the bulk of my readers have no interest in a bridge project in Louisville, I’m also running a full slate of regular articles this week, making this perhaps the biggest week ever at the Urbanophile.

This one is a follow-up to the 60 Minutes segment on demolitions in Cleveland by urbanist blogger Rob Pitingolo – Aaron. ]

Yesterday’s lead story on 60 Minutes was about vacancy and abandonment in Cleveland. This is an issue that hits close to home for me.

I started studying the problem in 2008. Back then the pressing question was how to target HUD money to strategically knock down blighted houses. The amount of money that HUD had to distribute wasn’t nearly enough to take down all the vacant and abandoned houses, so using it wisely was key, and it still is.

I want to emphasize that even though 60 minutes may have opened a lot of eyes to demolition in Cleveland, it’s not something that’s new. The idea of knocking down houses as the means to saving neighborhoods may seem counter-intuitive, but it’s been the prevailing strategy for several years now. Detroit has been following a similar strategy as well.

I do want to add something to the 60 Minutes analysis – a piece of the story that I don’t always feel gets told. Foreclosures may have fueled vacancy in Cleveland, but foreclosure is not the only reason why it’s such a big problem.

When homes go into foreclosure, they should get taken by banks and sold at auction for the price they’re worth, allowing investors to pick them up and rehabilitate, or allowing new buyers to own a home for a price they can afford. But banks themselves are walking away from these homes, because they’re literally worth zero dollars. When you look at it at the scale of the metro area, you realize that there is a big glut of housing supply on the market that’s driving down prices across the board, and in these extreme cases, all the way down to zero.

Believe it or not, the house I lived in before I moved to DC went through foreclosure. In 2008, the bank holding the delinquent mortgage sold it for $23,500 to an owner who rehabbed it, and then sold it the following spring for $96,000 (these numbers are all public record, in case you were curious). This is what should happen in a healthy market. Foreclosure shouldn’t necessarily mean vacancy, but too often in Cleveland, it does.

The Cleveland metro area is made up of the five counties around Cleveland – Cuyahoga, Lake, Geauga, Lorain and Medina. Between 2000 and 2010, two important but divergent trends emerged:

  • The population of the Cleveland metro area fell roughly 3 percent.
  • The number of housing units in the 4 counties excluding Cuyahoga grew more than 13 percent.

In other words, homes kept getting built between 2000 and 2010, even as people were fleeing the metro area. And most of these new houses were getting built in the suburban fringe counties. If you want to understand why there’s an oversupply of housing in the Cleveland area, look no further than these counties.

The fact that there were more houses but fewer potential buyers created an imbalance. When houses started to go vacant, no potential buyers stepped up because there were no potential buyers out there. If there had been potential buyers, houses might have gone through the process that my former house did. Many instead became vacant, because folks looking to buy a house had plenty of areas to look, and the weakest neighborhoods were obviously the first to go rotten.

But there’s more. Now that the bulldozers are starting to demolish houses and even entire blocks in the name of stabilization, it’s creating a metro area where tons of vacant undeveloped land is being created in the urban core, while developers are simultaneously building on greenfields in the fringe counties. Slowly but surely, it’s creating a “donut hole” that will make the entire metro area weaker.

Getting urban neighborhoods stabilized should rightly be the top priority, and Cleveland has decided that demolition is the best way to accomplish it. Unfortunately, years or sprawl and overbuilding, fueled by a foreclosure crisis, has created this reality. Further sprawl isn’t going to make the situation on the ground any better.

This post originally appeared in Extraordinary Observations on December 19, 2011.

17 Comments
Topics: Public Policy, Sustainability
Cities: Cleveland

17 Responses to “How Demolition Came to Mean Stabilization by Rob Pitingolo”

  1. John Morris says:

    Bedford-Stuyvesant, went through a pretty serious foreclosure crisis but got out of it swiftly as strong new buyers came in.

    I do think in many of these communities one has a fundamental problem going back to the poor quality of what was built in the first place.

  2. TMLutas says:

    Perhaps the legal environment is subtracting so much value that the land is literally worthless and will remain so as long as the legal code remains. I’m a big fan of just taking land away from a city if its possession of it does not further the use of the land but is retarding it.

    Unincorporate the land in the donut hole and you’ll find that it will more than likely acquire value. So why aren’t people doing this? Why aren’t state governments imposing this performance penalty on profoundly dysfunctional municipalities?

  3. James says:

    This is a familiar rust belt story. I am curious if Cleveland has a long history of using the wrecking ball or if it is new. I am also curious about the inner workings of this bureaucracy. Good governance matters. Detroit’s land bank is new and about 20 years late: http://chicagourbanist.blogspot.com/2011/09/wrecking-ball.html?m=1

  4. Chris Barnett says:

    This is an important difference between “world” cities in the US and the rest of us. The market works as the author opines it should…in NYC, DC, Chicago, LA, SF. Probably also in Portland, where there is a big thumb on the scale (in the UGB) that artificially inflates the value of land inside it. In those places, old/obsolete units are often “teardowns”, only the market sees to it.

    In slow-growing (or shrinking) metros, the author should consider “number of households” instead of “population” in his explanation. To the extent that the average household size fell 2000-10, a certain number of new units would be absorbed.

    And there is “structural mismatch”: the old (and near-obsolete) structures may be larger or smaller than those desired by new buyers, or configured to 1920 standards (tiny closets and kitchens, formal dining rooms, no large open spaces). Even though I like such homes, I acknowledge that not everyone does.

    Beyond style, there is engineering: such homes might be balloon-framed, a long-term unsound construction method that lends itself to sagging and collapse. There may be very old mechanicals (wiring, plumbing, HVAC). They may have no insulation in the walls and old wood windows. An accumulation of these kinds of deficits in houses in declining neighborhoods would indeed render the worst of such homes valueless.

    However, it doesn’t render the SITES valueless. Even in sprawling metros, new homes on near-downtown sites will sell.

    Google “Fall Creek Place Indianapolis” for a large-scale example of rebuilding a near-downtown place once so desolate that it was nicknamed “Dodge City”.

  5. Even in Portland, there are plenty of vacant houses; though there aren’t entire neighborhoods so full of them that even occupied properties are now worthless. Decent quality single-family real estate appears to have bottomed out here at about $100/sqft, down from pre-bust prices which were often north of $200/sqft.

    It’s been suggested (including by Krugman) that the UGB exacerbated the bubble: I don’t know if that’s true–there was never an extreme shortage of housing in Portland. While the local real estate market was hot five years ago, and it was a seller’s market, new homes were continuing to be built like crazy until the bubble burst. The difference is that in the Portland area they were generally on small lots, instead of consuming vast swaths of countryside.

  6. John Morris says:

    But, that’s the thing as far as I know in Cleveland we have a lot of property pretty close to the downtown that’s considered almost worthless. Same in Detroit.

    Something about the way, the city has developed has helped create that situation by lowering the benefits of proximity and all the normal synergistic value one would expect.

    We can start with the huge amounts of free and or low cost parking, highway construction, lack of transit etc… Add to this, very little higher density construction, few apartment buildings, and or townhouses to anchor streets and provide enough people to support shopping.

    In many cases, we have governements working to subtract value from the city. Insecure property rights are also a huge factor.

  7. John Morris says:

    @James

    The process is hardly new or just something that happened in Rust Belt cities. Urban Renewal, in most places was an attack on the fundamental attributes that make urban land valuable.

  8. j. england says:

    Fall Creek Place in Indy was called “Dodge City” because the government put the inner belt Interstate in as a Chinese wall just south of there, forced the renters and underclass to move north, poured $$ to the south, then refused to meaningfully support “Dodge City”. Fall Creek place is subsidized housing in many respects, and NOT a sucess. I suspect the same is true of Cleveland.People don’t abandon valuable property. City agencies force that to happen. Offer property with few use restrictions and it will be used. Get rid of zoning and building codes and people and the land will regain value. Also, and this would help significantly, stop sending EVERY student to college, regardless of interest. Instead, teach them minimal skills so they can do handyman work instead of McDonalds. If they are adept and motivated, they have a clear path to craftsman status and wages. In any event they can do something, and not just “hang out” on the corner, promoting abandonment of adjacent homes. Their availability would squeeze the excess profit from home remodelers, who mark up so much it is cheaper to buy a new house in suburbs than rehab old.

  9. James says:

    John Morris,

    I don’t understand what you are saying. Are you suggesting that removing derelict and crumbling abandoned buildings is a bad thing? Are you suggesting that Cleveland, Detroit, and Chicago are acting against their own interests by bulldozing abandoned structures?

  10. John Morris says:

    @James

    Most cities-New York, Newark, Pittsburgh, Cleveland, Detroit etc… used the wrecking ball to build highways or condemn all kinds of structures and entire nieghborhoods for all kinds of reasons. Im many cases this is a continuing wave.

    When, I say subtract value–I mean do things like build highways and barriers that break street connections, mandate and subsidise massive amounts of downtown parking; single use zoning and build all kinds of anti-urban facilities like Football Stadiums in central neighborhoods.

    Was NY’s Penn Station “blight”, or just not trendy at the time it was torn down?

    For the record, I think in a lot of recent cases, of totally abandoned property the wrecking ball is needed. The real question is how these conditions developed in the first place.

  11. James says:

    John Morris,

    Cities like Chicago and Detroit have been tearing down houses for many years for the same reason that this article was written: dereliction. Chicago and Detroit both started a process for fast tracking the demolition of derelict properties in their respective cities. In Chicago the program is called the Fast Track Abatement Program and in Detroit it is called the Land Bank. These programs were created years ago to deal with the issue of abandoned properties. Chicago’s Fast track was created in 1993 and Detroit’s was created in 2008 (see my link for more information). I am curious if the author of this post has any more detailed information on Clevaland’s program: when it was created, what specific mandate it has, etc. It is clear from the information presented herein that Cleveland needed to tear down empty houses years ago. Have they been doing that?

    I don’t really see this as related to the issue of urban renewal that you are describing. These properties aren’t being leveled to make way for something new. They are being leveled because they are unoccupied and falling into disrepair, and risk becoming a magnate for gangs and other unsavory elements.

    I have no idea if Penn Station was abandoned.

  12. Brian Cook says:

    As a First Tier Suburban Clevelander and part time single family renovator, I will share that the majority of the teardowns are on 30-40 front foot city lots, built pre WWII, timber framed and in neighborhoods that are in severe poverty. Many homes were bought by people with “no money down” or refinanced at above true value and people have literally just walked away from them. Also, Section 8 vouchers are much more common in first tier communities (Euclid, Lakewood, Cleveland Hts, etc) as the city residents pursue better educational opportunities for their children in perceived “better” schools. It is very ugly. The city had been tearing down homes but at a rate that in no way could keep up with abandonments. Also, if memory serves, the Land Bank was fully authorized in late in 2009 and, in my opinion, is beginning to have a positive impact with its programs. The question is, is it too late to plug the hole?

  13. Brian Cook says:

    I do want to comment on one interesting point relative to housing in Shaker Heights, a histocially affluent community on Cleveland’s near Eastside where I live. I have renovated 3 homes where the residents had located to Shaker specifically to enable their children to attend Shaker Schools. Based on county tax records each of these homeowners quit paying their real estate taxes approx 2 years before their kids graduated high school. The weekend after graduation, the family moved out abandoning the home which then sat for 1-2 years through the foreclosure process. It is easy to see that the houses were not maintained for an extended period of time, even prior to the abandonment. Just one more way people have learned to game the system.

  14. John Morris says:

    @James

    Yes, it is a very related topic.

    The question in many cities isn’t just the large number of forclosed homes-but the almost complete lack of demand for the properties from new owners.

    Why is inner city property in the key areas near downtown Cleveland and the east side near the colleges seen as so worthless? The general policies of land use and parking are the key problem.

  15. dominc says:

    Perception is key here. The cities that are mentioned, Detroit, Cleveland and Indianapolis are percieved as loser cities by natives who moved away. For example I grew up in Indy at Fairfield and Winthrop St. What makes these places losers is the inability of “residents” political clout that sunk the value of neighborhoods in proximity to downtown. The residents of these cities couldn’t fight segregation, white flight or interstates ripping through the hearts of a city. Escaping these places for greener pastures, for me Boston and Minneapolis, was the right choice. I don’t regret the past 30 years I have lived elsewhere. Why do I still care about Indy after all these years? Because something as memborable as riding my bicycle in that god for saken place is still a wonderful thought. When residents in the donut cities decide for themselves that they won’t be exploited to live in the fast lane anymore then maybe a bike ride will wake them up to the possibilities of living a good life where they call that place home. A bicycle in the city, any city, is only one solution forward. These donut cities can’t afford to not get the message out. Get on a bike and leave your car at home.

  16. James says:

    I can’t speak for Cleveland but many of these fast track neighborhoods in Chicago have very high violent crime rate. This, more than any other factor, is causing these neighborhoods to empty and the homes to have zero value. Places like Bridgeport have an expressway running through it but don’t have high violent crime rates or blighted buildings. So I suspect we are taking about two different subjects.

  17. j. england says:

    James:
    although you can’t blame all crime on the city they certainly encourage it. They permit and encourage ONLY their own, usually ineffective solutions and actively block useful implementations by the actual residents. Often they co-opt the “neighborhood associations” who allegedly represent the actual neighborhoods within the association boundaries. I am quite familiar with the Fairfield / College area of Indy that Dominic describes and the city was the big contributor to deteriation.(sp) Forbidden improvements included making courts and dead end alleys out of “drive by” streets, reducing street lighting by inserting decorative, expensive, hard to maintain lights when a more popular solution would be to increase the output of existing lights, allowing higher fences both front and back, gating the neighborhood from main streets (used for quick crime getaways) etc.

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