Save Detroit by Knocking Half of It Down? Sounds Crazy, but It Might Work

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A home with a court ordered eviction notice taped in the window on Mackay Street in Detroit, Michigan, U.S., on Thursday, February 21, 2013. Photographer: Jeff Kowalsky/Bloomberg *** Local Caption ***
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"In 1930, Detroit was the fastest growing city in the world. Today, it is the fastest shrinking city in the United States." -- "Detropia"

Detroit is in crisis.

Kevyn Orr, Detroit emergency financial manager, responds to a reporters question while being interviewed on Wednesday, March 20, 2013, in Detroit. The newly appointed emergency manager charged with getting Detroit's finances back on track is welcoming input from city officials as he begins his job next week. (AP Photo/Duane Burleson)
Duane Burleson, APKevyn Orr, Detroit emergency financial manager.
That's not just me talking. That's Kevyn Orr, the state-appointed financial manager charged with salvaging the Motor City from the junkyard.

Detroit's population is down two-thirds from where it once was, and 18 percent of the population is unemployed -- that's more than twice the national rate.

It doesn't take a master's degree in mathematics to tell you that when you're trying to run a city with only one-third of its former population present and accounted for, and only four-fifths of those folks employed and able to pay taxes, well... 73 percent of your tax base just went "poof!"

Now, throw in $15.7 billion in bond debt, pension liabilities, and other long-term obligations all loaded on top of the barely one-quarter of the population still sticking it out -- and things get very hairy indeed, financially speaking.

As Orr explains, it all adds up to a city administration that is quite literally "insolvent on a cash basis." And to emphasize the point, Orr adds: "No one should underestimate the severity of the financial crisis."

General Motors world headquarters in the Renaissance Center in in Detroit, Michigan on Monday, April. 27, 2009. Photographer: Jeff Kowalsky/Bloomberg News.
Jeff Kowalsky/Bloomberg NewsGeneral Motors world headquarters in the Renaissance Center in in Detroit, Michigan.
Hello, AAA? This Is Motor City, and We Need a Tow

So how is Detroit supposed to drive itself out of this economic ditch it's driven into?

One solution being bandied about up in Michigan these days is to default on the debt. That would put an end to the bankruptcy issue, but it won't fix the longer-term problem of how to get Detroit growing again.

So how do you fix that? One guy has an idea.

Bill Pulte says the only way to truly save Detroit and get the housing market functioning properly again is to destroy large swaths of the city as quickly as possible.
BloombergBill Pulte
Meet the Homebuilder Who Wants to Knock Down Homes

The man: Bill Pulte, a grandson of William Pulte, who built PulteGroup (PHM) up from a humble start in Detroit into the biggest homebuilder in the nation.

In an interview with Bloomberg last week, Pulte suggested that the first step to get Detroit growing again is to knock half of it down.

Pulte worries that streets lined with abandoned houses, alternately torched by arsonists or looted by copper-pipe thieves -- or both -- scare away folks who might otherwise move into the area and start it growing again. (Go figure.) Illustrating the truth of this theory, housing data service RealtyTrac says that in all of Detroit last year, only 578 mortgages were taken out for home purchases.

Another problem that needs addressing is the cost of servicing an underpopulated city that sprawls across 139 square miles of land, its few inhabitants scattered hither and yon.



Those dispersed holdouts all require water, gas, and electricity supply lines (which cost money to maintain), garbage collection, fire trucks, and ambulance service (which burn gas driving from house to distant still-inhabited house), police cruisers patrolling deserted streets, and on and on.

Pulte's solution to both problems is to "go into one area and take down everything," and start fresh. To right-size the city, concentrate the population within a smaller, cheaper-to-service footprint, and raze the rest.

He's already begun, leveling 10 city blocks in Detroit's Southeast in an urban-blight-elimination project. A further 15 blocks could be razed this month, and Pulte wants to ramp up and start knocking down houses at the rate of 13,000 vacant homes per year.


Collateral Benefits

Not everyone loves the idea. Indeed, in the Detropia film referenced above, longtime Detroit residents were spitting-mad when asked to move from their homes to somewhere more centralized -- and ridiculed suggestions that leveled house lots could be used to grow tomatoes, for example.

But some studies suggest the idea has merit.

A 2005 study by the Wharton business school found that knocking down abandoned houses in one Philadelphia neighborhood resulted in adjacent homes gaining 30 percent in market value.

That alone should win Pulte's idea some serious consideration. But the folks being asked to move, however, rather than staying and enjoying the benefit of the "creative destruction" next door, might need additional motivation.

One modest suggestion: After the bankruptcy thing's out of the way (and you know it's going to happen), and Detroit has some breathing room to think about how to start growing again, try giving residents a choice. Raise taxes, raise utility rates, raise rates on city services to a point that actually covers the city's costs. Let residents stay where they are and pay the premium -- or move to more centralized locations (leveling their houses as they leave), and give them a tax break as a reward for playing ball.

Spread around the benefits of right-sizing Detroit like that, and residents might start thinking Pulte's plan is the right one after all.

Motley Fool contributor Rich Smith has no position in any stocks mentioned.


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42 Comments

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schmoyers

Knocking down half of Detroit is not crazy at all. Look at what has happwened to cities like Dresden Germany which was fire bombed to smithereens in world War Two. More than haf of all German cities lost at least fifty percent fo theri buildings during thw war. The center fo Dresden is nearly rebuilt and the city once agina shines as a cultural and business ceneter. The sema is tru for Munich, Berlin,Cologne. Frankfort, Rotterdam Holland etc. This rebuilsing began with "trammelfrauen" caering away the rubble bick by brick.Then the United sates of America came in with Marshall Plan funding to begin the rebuilding process. Finally private sector forces, along with government induced hisotric rehabilitation funding took over. Today these cites are great places to live, vist and do business. If America rebuilt Europe after The War, why cant we build Detroit and abandoned sections of Philadelphai,Camden and Baltimore?????

June 08 2013 at 11:49 AM Report abuse +1 rate up rate down Reply
Frankbrett

I grew up in Detroit and I can summarize their problem in one sentence. "The people of Detroit feel entitled and victimized". The unions gave them the sense of entitlement and the schools taught about slavery (ad nausea) and gave them the sense of victimization. When you have these two characteristics you get high crime (no property rights), corruption, and no one taking responsibility. Tearing down 1/2 Detroit is NOT a solution to this problem. You need to re-educate the population to get off their butts and work and take responsibility for their problems. I just don't think this will ever happen.

June 08 2013 at 10:51 AM Report abuse rate up rate down Reply
mikejarosz

It's hard for Amercans to imagine reinventing our cities, but look at cities like London And Paris, which date as far back as the Roman Empire. We are all familiar with images of pigs in the street, streets as open sewers, dark winding alleyways harboring the plague. Detroit and some other rustbelt cities are the modern version of Dickensian London.

But look at London and Paris now. Gone are the pigs, the sewage and the plague. Paris has boulevards where there once were dark, threatening alleys. Medieval timber houses with thatched roofs were torn down by the Victorians to rid themselves of these crumbling slums. Of course, they that the Luftwaffe to help their urban renewal.

I think tearing down Detroit is a good idea if it's done right, like Haussman's boulevards. Just please, no Levittowns!

June 08 2013 at 10:49 AM Report abuse rate up rate down Reply
boowah

Great idea! It would be perfect for Scranton, Pa. First we default on our debt service. Our taxes are high enough to pay for our city services. Then we begin to buldoze delapidated housing and consolidate neighborhoods. We can start with the schools. We have too many underutilized schools that we caused by building new ones that we didn't need. Naturally, everyone wanted to migrate to the new schools and abandon the older ones which are still open. Lets close them and consolidate!

June 08 2013 at 10:34 AM Report abuse rate up rate down Reply
WILD BILL

The comments here show how the people of America really feel.We don`t want to save anything our Gov. has us hating each other wheather it`s saving a city or the country.We don`t want to give anything but we want everything.The Gov. takes our tax dollars and waste it on things like how a frog mates or how far a grasshopper can jump.Until ALL of us say enough is enough they will keep doing the same thing.Programs that were and still could be good for the people of this country are being used to just take money and not work.Women having baby after baby just to get another check from the gov. needs to be stopped.These people work the system to get free money.I think if you get a check from the Gov. for welfare then you should be made to do some kind of work in the city you live in .Even if it`s nothing more than picking up trash.

June 08 2013 at 9:28 AM Report abuse rate up rate down Reply
cammerconcepts

The only person that would think this idea sounds crazy is one that has never been there.

June 08 2013 at 9:26 AM Report abuse rate up rate down Reply
smaselli13

He is assuming that someone will come in and build things. Just won't happen. Everyone knows what the environment will be like. Just more dysfunction, deadbeats, freeloaders, and lazy people. No, my money is going elsewhere!

June 08 2013 at 9:16 AM Report abuse rate up rate down Reply
smiles41

Pulte got is HALF right....

June 08 2013 at 9:00 AM Report abuse rate up rate down Reply
dmbranagan

they tried that in my city, after 5 yrs the homes were either reposessed or people with jobs did not want to live there. Eventully the spread of "mold " took the block back." Solve the real problem,stop the bandages,stop outsourcing jobs.

June 08 2013 at 5:59 AM Report abuse +1 rate up rate down Reply
Jim

Your city is not the only city in America that needs some serious makeover, however until the major problem of what are you going to do with the people that live there is`addressed,it want do any good to tear down and rebuild.

The money that the US spends on fighting wars for other countries and giving aid to other countries, when our cities could use that money that is wasted to rebuild and provide jobs, not welfare, for the citizens of these cities and give them some hope for their future.

June 08 2013 at 5:19 AM Report abuse +1 rate up rate down Reply
1 reply to Jim's comment
smaselli13

You have 2 choices of what to do to the people who live there. You can make them go to work, or you can give them just enough to stay alive. You know what we have done in the past......................has it worked?

June 08 2013 at 9:18 AM Report abuse rate up rate down Reply