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Classic Sign of Deflation Has Finally Happened in Cleveland, Detroit, and Phoenix

My good friend (Steve Moyer) and I have talked about this several times over the past few years: Rust Belt Cities Demolish Homes as Defaults Blight Neighborhoods

Cleveland's population has been shrinking for 60 years as the city lost manufacturing jobs. Now, after more than 33,000 foreclosures since 2005, it's demolishing hundreds of deserted, derelict homes.

An agency started last year to manage abandoned houses in Cuyahoga County, which includes Cleveland, plans to acquire up to 1,000 properties next year, and tear down as many as 900 of them. The city of Cleveland may raze double that amount, according to Gus Frangos, president of Cuyahoga County Land Reutilization Corp.

"You really have to bury the dead right now," Frangos said in a telephone interview. "You have to remove blight. It's unfortunately on a grand scale."

Cities and counties across the Rust Belt are ending up with abandoned properties under their control as owners stop paying taxes. In Cuyahoga County, a record 2,400 tax foreclosures may occur this year, said Chris Warren, Cleveland's chief of regional development. The governments are choosing to tear down some buildings rather than sell them as residents move to the suburbs and steel, automotive and manufacturing jobs disappear.

Detroit Demolitions

In Detroit, like Cleveland, the population has dropped by more than half since 1950. The city is in the process of demolishing more than 3,000 houses, according to Dan Lijana, a spokesman for Mayor Dave Bing. The mayor, elected last year, has pledged to tear down 10,000 abandoned and dangerous homes in his first term, Lijana said in an e-mail.

Detroit has almost 51,000 properties for sale and may add more through this year's tax foreclosure auction in Wayne County, where the city is located.

"These cities really have to take on the properties," said Alan Mallach, a senior fellow at the Washington-based Brookings Institution. "If they're going to be responsible stewards, they really don't have a choice."

Detroit, which has about 911,000 residents, plans to spend $14 million of $47 million from the first grant it was awarded in the federal Neighborhood Stabilization Program to get rid of vacant properties that breed blight. Detroit razed 12,600 homes in the decade before Bing took office, Lijana said.


Phoenix, which has the eighth-highest U.S. foreclosure rate, also received money from the federal government and plans to spend 3 percent of the first round on "clearance," which includes cleaning up vacant lots and demolishing properties, according to government records.

For Sun Belt cities such as Phoenix, where there likely will be greater growth than in Cleveland and Detroit, the more practical strategy may be to hold on to homes until the real estate market recovers, said Terry Schwarz, director of Kent State University's Cleveland Urban Design Collaborative in Cleveland.

I personally didn't think this was going to happen until 2012 to 2014, but it's finally here. Cities, whether it be shrinking cities or over developed cities, have thousands of homes on the market, and thousands of dilapidated vacant homes. With no demand, these vacant homes have no value. In fact, they have a negative value equal to the cost to demolish these structures.

These demolished homes represent a permanent loss in real estate taxes for these cities, which limits any kind of tax revenue growth without raising taxes and fees on citizens.

Expect this trend to continue. It may broaden to Florida, the Valley of CA, Georgia, and other pockets of over developed cities or shrinking manufacturing towns.

Hope all is well.


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