Is Razing Homes Ever a Good Solution to Foreclosures? Cleveland Says Yes

9.4.13 | As the foreclosure crisis shifts from crisis mode to cleanup mode, cities around the country are struggling to deal with a swath of abandoned properties. Chicago recently lost its effort to recoup some of the maintenance money it has spent on abandoned properties, and Baltimore is moving ahead with razing some properties. Land banks are popping up across the country to take over the properties and get them back into the market.

But it was a headline in the Cleveland Plain Dealer that caught my eye and made me reach out to BRR’s Edward (Ned) Hill in Cleveland. The headline read, “Bull-Doze War Truce: Feds say Ohio can divert $60 million to demolish vacant homes.”

As an outsider I was at first appalled that the city was bulldozing homes—homes that are most likely in low-income, largely minority neighborhoods. It smelled of “urban renewal,” the legacy of which still haunts my hometown, Chicago. And I also wondered, doesn’t Cleveland have a Land Bank to address this issue? 

So I asked Ned about it. Here’s his response:

In late August, the federal Department of Housing and Urban Development allowed the state of Ohio to shift $60 million of its “Hardest Hit” foreclosure prevention funds to demolition. Why, you may ask, allow 16 percent of the money designed to keep people in their homes to be used to knock down structures? The reason is that population has moved, the foreclosure tsunami cratered demand for housing in many older, low-income neighborhoods, and mass amounts of vacant property has accelerated blight and danger, which in turn creates more blight and further hammers the housing stock and makes people’s live worse. Also, $60 million diversion is for the entire state and is not enough to get the job done.

The city of Cleveland and some of its eastside suburbs are awash in abandoned properties. It appears that there is a new wave of foreclosures on the horizon, as the vultures that picked up mortgages in 2008 and 2009 are walking away from their “investments.”

Here are some numbers:

  • In Cleveland one in 10 houses is vacant. In the low-income city of East Cleveland the number is one in five—20 percent.
  • An estimate from NEO CanDO in August put the number of vacant houses in Cuyahoga County at 26,500, with 64 percent of these properties located in Cleveland.
  • 45,000 homes have been sold at a sheriff’s sale and many are heading back to court as the vultures realize that prices aren’t low enough to move them. Many have been stripped.
  • Frank Ford, of the Thriving Communities Institute, estimates that half of the vacant houses in Cleveland are candidates for condemnation and the longer they sit the better the chance that they will enter the teardown queue.
  • It takes about $7,000 to rip down a wooden house in Cleveland. Doing the math indicates that the bill that will come due from cleaning up the vacancy mess in the city of Cleveland alone is about $93 million. The countywide bill will be in excess of $150 million.

These are houses with no value; there is no demand at a price that can keep them maintained. How can a house have no value? Again, back to the data:

  • In 2006, the year before the Great Recession, as the housing bubble was beginning to pop, a house that had a gut rehab could be sold with no subsidy. In 2012, the same house required a subsidy of $80,000 to $90,000. These subsidies take the form of write-offs of the rehabilitation costs and come from a complicated set of sources—block grant funds, state clean up funds, and different pools of money from the federal government, and some philanthropic dollars.
  • This makes no sense when used houses in the suburbs that are safer, with better services are priced at $60,000 or less.
  • The Cuyahoga County Land Bank has fully rehabilitated homes for sale for $40,000.

Cuyahoga County has a superb land bank that is leading the charge for the diversion of funds. Why? They are on the ground and they know the negative spillover from abandonment. The increase in physical danger and crime around these properties is measurable—and it has been measured, but the results are not yet public. In addition, vacant properties drag down the values of surrounding properties and accelerate neighborhood decline.

There is an active effort by the city’s neighborhood development corporations [CDCs] to retain those properties that can be salvaged and can be affective housing. But shock of shocks (not really), a major holder of properties that are in housing court is the Union Miles CDC. These are homes that were either newly constructed or rehabilitated with public money that now should see the blade of a bulldozer. Falling demand and bad building security hits all.

With massive population loss comes the inevitable shift in the demand curve. And, with increases in poverty among those left behind, the effective demand curve shifts even more.

Read the news reports from dispatch records obtained by the Northeast Ohio Media group of the angry phone calls made in June to the city of Cleveland’s emergency dispatch by City Councilman Eugene Miller as he demanded that police come to his home on Kelso Avenue to deal with a group of more than 100 young people causing a disturbance outside. Miller reportedly refused to explain to the dispatcher what was occurring. And, as he repeatedly emphasized that he was a City Councilman he became angrier with each subsequent call, demanding to speak to a supervisor and threatening to call the police chief and a commander.

The lesson is what comes next in the story: “I’m sick of living over here, man,” Miller states. “I’m just sick of living over here. And I’m a Cleveland city councilman. Nobody should have to live through this [expletive] over here. I can’t take this [expletive] no more.” Miller represents a ward that is a sea of abandonment.

At the same time there is a neighborhood-building revival underway in the downtown and the near westside neighborhoods. The occupancy rate downtown has been north of 95% for nine quarters. Downtown’s population increased from 4,651 in 1990 to 9,098 in 2010. With conversions of class B and C office space into rental units and condominiums continuing, there are now more than 5,000 units and more are coming. A reasonable “guestimate” of the number of downtown residents would be 13,000 people.

Meanwhile, the three neighborhoods immediately west of downtown, just across the Cuyahoga River, are filling up. Infill investment is apparent. Tremont was the first to revitalize, thanks to a CDC that is extremely skilled at layering finance and working with the city and Downtown Development Advisors; a near New England Village layout with downtown access; a Hope VI project of note; and a number of entrepreneurial restaurateurs. You cannot beat Tremont’s public square, old bathhouse, and collection of churches.

My students report that apartments cannot be found in Ohio City, located across the river from the university and a stroll or rail stop from downtown’s Public Square. Ohio City has several anchors that are hard to replicate elsewhere: the city’s last remaining European-style public market is surrounded by an emerging brewery district that backs up on an elite Catholic Boy’s preparatory school. Both Tremont and Ohio City are now more diverse in terms of race and income than in the past.

To the west of Ohio City along the lakefront is the Detroit-Shoreway neighborhood. This is where urban pioneers are heading and where most of the foreclosed and troubled houses have been rehabbed. Another skilled CDC—with three decades of experience at housing investment—is at the core of this neighborhood’s “overnight success.” It is an arts district and it also has very stable political representation in city council. Councilman Matt Zone has ensured that money was invested in infrastructure, including fixing the streets, and the neighborhood has partnered with downtown’s business improvement district to bring courtesy patrols to the area.

Now that middle-class homeowners in all of these neighborhoods are having children and the city has embraced charter schools, quality schools with high degrees of parental involvement are popping up. All are accessible to children from financially disadvantaged households.

This is not to declare the struggle over; it is not Pollyanna reporting on four neighborhoods. It shows that there are green shoots appearing amidst the rubble of disinvestment. It required anchor amenities, a strong local investment presence—in Cleveland’s case with a few strong CDCs that are fairly independent of the local Councilperson’s ward machinery, public decorum, and lots and lots of public investment that is not squandered through corruption. A final piece to the puzzle is parents invested in their children’s schools and schools that are responsive to kids and not centers of patronage employment.

What to make of all of this? The sea of abandonment means that land must be cleared and held. A city that had a post-World War II housing shortage and a population of nearly one million now has an estimated population less than 400,000. You cannot save it all. The diversion to funds is justified.

Populists may rage at the gentrified downtown and the revived near westside. But in Cleveland it is a new form of gentrification; gentrification without displacement—the city’s history of having a nonresidential downtown and abandonment in nearby neighborhoods ensured that outcome. But you need effective demand and neighborhoods that are built around valued assets.

Read more: Do Industrial Cities Need to Demolish in Order to Rebuild? and Innovative Ideas to Rescue Communities with High Foreclosure Rates.

Photo / Julio González

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