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Original article URL: http://bridgemi.com/2015/11/how-one-plucky-michigan-town-is-rebuilding-its-housing-market/
12 November 2015
At age 27, Sarah DeNoyer found herself tired of renting and ready to take the next step into adulthood. But a housing search in her native Ferndale, near Detroit, left DeNoyer feeling dispirited. Nothing she liked was in her price range, and the affordable options weren’t even close to what she wanted. So she did what homebuyers do all the time: Looked elsewhere. Which led her to the adjacent community of Hazel Park, and a starter home she fell in love with.
It’s nothing special as real estate goes – 900 square feet over a crawl space, with an attached garage. But the house, the very first purchased through an innovative nonprofit entity called Land CURE, represents the future for both DeNoyer and Hazel Park, striving to rise out of the Great Recession. It’s a model that may hold promise for other small Michigan cities and towns looking to stabilize property values.
No city in Oakland County was hit harder by the real-estate collapse than this working-class suburb of 17,000 on the north side of Detroit’s 8 Mile Road border. The city lost more than half its land valuation and accompanying tax revenues in the recession, nosediving from $327.5 million in 2008 to $154.5 million today, said City Manager Ed Klobucher.
“We had the highest foreclosure rate per capita than any other city in metro Detroit,” Klobucher said.
That’s dire in a city like Hazel Park, filled with modest housing stock like the bungalow DeNoyer now lives in. Landlords swooped into the decimated market, snatching up foreclosed houses and turning them into rentals, but nearly two-thirds of those ended up back in foreclosure within two years, Klobucher said.
Tax foreclosures ‒ property forfeitures for non-payment of taxes ‒ peaked in 2012 at 140.
“We had to do something,” Klobucher said. “You can’t let your city decline.”
The city was already practicing strict code enforcement and receiving Neighborhood Stabilization Program funds from the federal government, which allowed for a number of uses, including blight removal. But Hazel Park needed something more, Klobucher said.
Land CURE is based on strategies developed by the Genesee County Land Bank, the brainchild of U.S. Rep. Dan Kildee, D-Flint, who founded it in 2002, when he was that county’s treasurer. Land banks provide tax-foreclosed properties a fast-track route to sale or redevelopment. Enabled by state laws passed in 1999 and 2003, where once it could take many years to clear a title and return a parcel to the county treasurer, a land bank cuts that time to one to two years.
With the exception of Detroit, land banks in Michigan are run by counties. Yet fewer than half of Michigan’s 83 counties have opted to create them. Because Oakland County does not have a land bank, Hazel Park faced an obstacle in its bid to more quickly turn around struggling neighborhoods. So its officials got creative: They incorporated Land CURE as a nonprofit to perform the same job as a land bank.
It is run by Klobucher and Jeffrey Campbell, assistant city manager, with assistance from Oakland County Treasurer Andy Meisner, contractors, Realtors and others.
To date, Land CURE has taken title to 51 homes. Rather than sell them as-is, Klobucher and Campbell wanted to actually improve the city’s housing stock. So Land CURE general contractors significantly upgrade the homes en route to sale, and they end up like DeNoyer’s – with new kitchens, appliances and other fixtures, commanding a far higher price.
“It has hardwood floors, mantel with fireplace, updated kitchen,” DeNoyer said, ticking off her favorite amenities. “My best friend bought new construction in Ferndale and walked into my kitchen and said, ‘I want this.’”
The process is necessarily slow, Campbell said. There were delays in getting nonprofit status, and Klobucher said they wanted to “aim small, miss small” as they learned to run the organization. But so far, Land CURE has moved nine homes into the hands of owner-occupants.
“Seventy percent of buyers have been single millennials,” said Klobucher. “And we want more families.” Young people like DeNoyer, the city manager said, will bring energy to a city that has struggled to match the success of its neighbors in Royal Oak and Ferndale; indeed, Hazel Park is still trying to shake its nickname “Hazeltucky,” derived from an influx of Appalachian transplants who arrived generations ago looking for auto jobs.
“There’s nothing wrong with that, we’re proud of our history,” Klobucher said. “But we want to be known as an affordable, learning community with a unique identity, that sticks together.”
Very quietly, Hazel Park is having a bit of a moment.
The city has its own Promise Zone, guaranteeing students who graduate from local high schools two tuition-free years at Oakland Community College or an equivalent technical training program. Embryonic nightlife businesses – Cellerman’s, a microbrewery, and Mabel Gray, a restaurant opened by former “Top Chef” contestant James Rigato – are popping up in town. And Land CURE houses are selling for more than Realtors’ estimates; one on Hayes Avenue just went for $87,000, when comparable sales nearby suggested a price closer to $69,000.
That wasn’t the case earlier in the summer, and DeNoyer’s home was one of Land CURE’s first hard lessons.
The house was priced at $69,000, and DeNoyer’s offer of $67,000 was accepted, but an appraisal put the value at $53,000. Lenders generally won’t loan more than an appraised price. Klobucher said Land CURE couldn’t wait for the housing market to rise, so it dropped the price to $53,000. DeNoyer got what she called a “ridiculous” bargain and the land bank only cleared $886.
“We learned that the market needs to catch up with us,” Klobucher said. “We need to choke the supply a little bit.” The latest sale, though, appraised at its sales price, with two other Land CURE houses used in the calculation of comparable sales, at good prices.
The “first and foremost” purpose of Land CURE is to stabilize property values, and Land CURE, as well as rising prices generally, have boosted the average square-foot sales price in the city from $44 to $70. Prices are up 14 percent over the last year.
The Land CURE model is one that could be used by other communities that don’t have county land banks, particularly ones like Hazel Park, inner-ring suburbs with issues more in common with the city they surround than more affluent, sprawling towns farther out. But like the communities they serve, land banks are not one-model-fits-all.
Back in Genesee County, for instance, the county land bank doesn’t rehab houses. Sales prices in Flint, where the greatest need would be, are simply too low to justify the cost, said Doug Weiland, executive director of the land bank. Any money poured into new kitchens and appliances would be poured down the drain – “Our housing market is so upside down it’s hard to compare to other places.” In Genesee, the land bank is more effective carrying out demolitions and brownfield redevelopment, he said.
Eric Schertzing, Ingham County Treasurer and administrator of its land bank, says the boutique approach for a single community like Hazel Park is interesting. But he said he ultimately believes a better solution is for counties to run them, rather than duplicating smaller operations like Land CURE; Oakland’s failure to set up its own has more to do with the politics than practicalities, he said.
Robert Daddow, a deputy county executive in Oakland County, disagrees. He declined to comment on Oakland’s decision not to institute one of its own, referring to his 2011 report on the subject. In that document, he analyzed three land banks that would be comparable in size to one in Oakland, and concluded they are inefficient, expensive and, ultimately, less effective than a market in which government plays a lesser role in helping develop tax foreclosed properties.
Meisner, the county treasurer, doesn’t share Daddow’s view, and says that if LandC URE succeeds, it will show a way to use the tools of the state law in at least some pockets of a county that stretches from the affluence of Bloomfield Hills to the poverty of Pontiac.
The real estate collapse of earlier years cost Oakland County more than $15 billion in taxable value, Meisner said, and while the small gains in these small houses in Hazel Park don’t amount to a great deal, “The county treasurer wants every one of those dollars back, and this is one way to do it.”
For residents who buy or live near rehabbed houses, “this is a damn important project,” Meisner said. “Take it to scale, and soon you’re talking about real money, and a real recovery of the tax base.”