With the news this weekend that Detroit has declared a financial emergency and will relinquish control of its finances to an emergency manager appointed by the State, it seems appropriate to look at the role of real estate development in this situation.
Over the past decade, the most staggering case of urban decline has occurred in Detroit, Michigan. In its prime, Detroit rose to the fourth-largest population in the United States with more than 1.8 million residents. Recent census data shows that the population shrank to approximately 715,000 in 2010, with over 25% of residents leaving in the past decade alone. The loss in population left an equally staggering amount of vacant land; the 139-square-mile city now has approximately 40-square miles of vacant land, equaling more than 100,000 vacant parcels.
Vacant lots have riddled the city with violence, decay and poverty. Furthermore, their sporadic and sprawling nature has created a highly inefficient system for public services, which in turn has increasingly dire effects on Detroit’s finances.
The pace and severity of Detroit’s downsizing spurred interest amongst urban planners, architects, developers and government officials across the country. Many designers put forth urban agricultural master plans, aimed at using vacant lands for food production. Others, most notably the mayor of Detroit, have suggested a consolidation of the city to ease the strain on public infrastructure. Faced with a 300-million dollar budget deficit, Mayor Bing proposed the “Detroit Works Project” as a means to reduce blight, crime, and to create a more densely-populated city. His plan called for the demolition of abandoned buildings and the relocation of many residents. While this consolidation of the city is desperately needed, eminent domain laws have rendered the plan almost impossible to implement.
A quick history on eminent domain law: after the highly controversial, landmark case of Kelo v. City of New London (2005) which extended the traditional definition of takings for “public good” to private developers, many state Supreme Courts amended their laws in favor of more strict regulations. Michigan was one such state. The changes aimed to give greater protections to homeowners by making the burden of proof fall on the taking body, increasing just compensation to 125% of fair market value and restricting takings on the basis of economic development. These changes, coupled with the recession a few years later, made land acquisition by the government legally and financially infeasible.
Given that reactionary legislation has constricted the use of eminent domain in the City of Detroit, it seems time for residents to encourage sweeping private development. Unfortunately, this doesn’t seem to be taking hold. For example, while the concept of urban farming is widely liked, most residents only seem to approve of its implementation in a grassroots manner. I was disappointed to learn that a private developer was chastised for his extensive plan to buy 2,000 parcels for what was to be the development of the largest urban farm in the world. His plan was called a “land-grab,” a term that refers to the large-scale land acquisitions in sub-Saharan Africa and Latin America. The key difference here is that in Detroit no productive activity is being removed for the sake of real estate investment. In fact, it’s quite the opposite; an individual is making a risky investment with the hopes of creating productive activity.
If Detroit residents want to revitalize their city, they must shift from their inclination towards strict private property rights, to a more holistic view of urban land economics.