Location, location, location

by on April 8, 2009 at 7:26 am in Data Source | Permalink

Craig Newmark reports:

Matthew Kahn notes that one median-priced house in Westwood could be exchanged–ignoring transactions costs–for 100 median-priced houses in Detroit. Would this be a good trade? I report, you decide.

If you are skeptical, here are the data on Detroit.

franko April 8, 2009 at 8:31 am

mills of God grind slowly, yet they grind exceeding small

nevermind transaction costs – how about backtaxes and future municipal taxes

to say nothing of bringing those detroit homes back up to code and the security
costs….

Zephyrus April 8, 2009 at 9:10 am

I have 1000 igloos in Nunavut to offer you.

John Voorheis April 8, 2009 at 9:50 am

Detroit is a shrinking city with an oversupply of housing. Also, the Michigan Realtor data talks about averages, not specifically medians. If the average number is a simple mean, its much less useful – it includes a whole bunch of $1 houses.

floccina April 8, 2009 at 10:59 am

I wonder if eventually people will buy those Detroit homes for the salvage (wood, fixtures, pipes etc.)

TW Andrews April 8, 2009 at 12:16 pm

If you’ve got a very big family.

David Smith April 8, 2009 at 12:47 pm

I’m skeptical that the median house price in Detroit is as high as $13000. Here is one estimate (from December 2008) at $7500: http://www.chicagotribune.com/news/nationworld/chi-detroit-housingjan29,0,5435392.story

aaron April 8, 2009 at 1:16 pm

If you can get them all in one area and get security provided so you can renovate or rebuild without everything getting stolen or vandalized.

Rex Rhino April 8, 2009 at 2:15 pm

Well, I would rather have a house in Detroit and the cash difference, than a house in Westwood. However, I don’t have much use for 100 houses. Aren’t markets supposed to eliminate barter?

Dan H. April 8, 2009 at 6:40 pm

Does anyone know why market forces didn’t work in Detroit? I would think that a city with that much unused residential and commercial real-estate and an idle labor force would have presented opportunities for new businesses, which would have rushed in to take advantage of the lower costs.

I saw a picture of Detroit, taken this year, which showed the old Packard plant still standing – all rusted out and boarded, but occupying prime real estate for decades. Why was this? In my city, old factories that close are torn down and new enterprises seem to spring up almost overnight. What happened in Detroit? Was it government regulation? High taxes? Zoning laws? Social factors? It doesn’t seem to make sense that such a prime area with such depressed costs would remain idle for so long, through several large economic booms.

former michigander April 8, 2009 at 7:09 pm

Dan H. — let me quibble. an old Packard plant in Detroit can’t be occupying prime real estate by definition as it is in Detroit. For the plant in question, I’m not sure if that real estate was ever prime.

James April 8, 2009 at 9:17 pm

“I wonder if eventually people will buy those Detroit homes for the salvage (wood, fixtures, pipes etc.)”

No. The reason is simple enough; why buy when you can steal? It isn’t new, salvage companies have been stealing raw materials from Detroit’s abandoned buildings for decades.

http://www.detroityes.com/webisodes/2001/09-rapeofdetroit/01-3rodleefacadeDet.htm

Empty houses in Detroit are also mined. Of course the first thing to go in an empty house are the appliances: AC unit, central heating, water heater, oven, etc.

For outsiders looking into Detroit’s miasma, often one wonders how a one dollar home isn’t sold? At some point the value of the building materials are higher than the value of the home itself. At that point isn’t it undervalued?

The answer is no. Detroit is a modern day ghost town in the making. Ghost towns lost value, but the homes still stand in the old west. It is an odd relic of our cultural values. America is a strange place.

James April 8, 2009 at 9:30 pm

Dan H.,

To answer your question, you must first understand why Detroit came to exist as a manufacturing mecca in the first place. The answer is that Detroit was the perfect intersection of Lake Superior iron, Appalachian coal, and access to shipping lanes via the St. Lawrence seaway.

The Lake Superior iron mines closed in the 60s. Coal has been less essential to running a factory for a while now, and the St. Lawrence is too narrow for most modern shipping vessels. Therefore, there are no comparative advantages to industrial production in Detroit, or other industrial cities of the Middle-West, who also rode that convergence of iron, coal, and shipping.

As to Detroit itself, you should probably look more closely at the demographic numbers. The city of Detroit has been shrinking for over 50 years. But metropolitan Detroit has never lost population. If you are to believe that Detroit’s woes are to job losses because of the declining US auto industry you’d be mistaken. After all, how can metro Detroit grow in population with a waning auto industry?

JimS April 9, 2009 at 2:41 pm

Here is a 6 bedroom in one of the city of Detroit’s best neighborhoods. http://www.zillow.com/homedetails/3465-Burns-St-Detroit-MI-48214/62323414_zpid/
The misgovernment in the city county and state the last forty years are truly breathtaking.

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