Detroit is the economic basket case of America. Besides being overly dependent on an ailing industry, they have a shrinking population (the city has lost half its residents over the past 60 years). The city’s former auditor-general put it this way: “Insolvency is certain. The only question is the timing of the inevitable.”
Here’s a link to an op-ed in the WSJ from a Detroit News columnist that’s worth a read.
Is there a silver lining for Detroit? Yes, it’s the housing stock. As it gets cheaper, it will attract more and more poor people.
Here’s a NY Times Magazine article on housing economics and cities. It contains some discussion of Detroit housing and other rust belt cities that have steadily lost population.
This snippet is priceless:
When cities decline, however, the trends get flipped around. Population diminishes slowly, but housing prices tend to drop markedly.
Glaeser and Gyourko determined that the durable nature of housing itself explains this phenomenon. People can flee, but houses can take a century or more to finally fall to pieces. “These places still exist,” Glaeser says of Detroit and St. Louis, “because the housing is permanent. And if you want to understand why they’re poor, it’s actually also in part because the housing is permanent.” For Glaeser, this is the story not only of these two places but also of Buffalo, Baltimore, Cleveland, Philadelphia and Pittsburgh — the powerhouse cities of America in 1950 that consistently and inexorably lost population over the next 50 years. It is not just that there were poor people and the jobs left and the poor people were stuck there. “Thousands of poor come to Detroit each year and live in places that are cheaper than any other place to live in part because they’ve got durable housing still around,” Glaeser says. The net population of Detroit usually decreases each year, in other words, but the city still attracts plenty of people drawn by its extreme affordability. As Gyourko points out, in the year 2000 the median house price in Philadelphia was $59,700; in Detroit, it was $63,600. Those prices are well below the actual construction costs of the homes. “To build them new, it would cost at least $80,000,” Gyourko says, “so there’s no builder who would build those today. And as long as those houses remain, the people remain.”
