Why Are Houses So Cheap in Detroit?

Detroit, a city once synonymous with American industrial might, has garnered a reputation for remarkably affordable housing. The factors contributing to this unique housing landscape are complex, stemming from profound historical shifts, significant demographic changes, and their impact on property values and the local taxation system. Understanding these elements provides clarity on why housing remains accessible in many parts of the city.

Historical Economic Shifts

Detroit’s economic foundation was deeply rooted in the automotive industry, which propelled the city to become a global manufacturing powerhouse. However, beginning in the mid-20th century, the decentralization of automotive manufacturing and increased foreign competition led to widespread factory closures and substantial job losses. This industrial decline created an economic vacuum, as thousands of high-wage jobs disappeared, leaving a significant portion of the workforce without employment.

The departure of major employers and the subsequent loss of a substantial portion of the population severely eroded the city’s tax base. Reduced income from property taxes, sales taxes, and other municipal revenues meant Detroit faced immense fiscal challenges. This rapid economic transformation diminished the city’s ability to maintain infrastructure and provide services, initiating a cycle of decline.

Population Dynamics and Urban Blight

Following the severe economic downturn, Detroit experienced a dramatic population exodus, with a 61.4% decrease in residents between 1950 and 2010. This mass departure resulted in a significant surplus of housing units for a greatly diminished population, leading to a stark imbalance between supply and demand. As residents left, many homes were abandoned, contributing to widespread urban blight across the city. By 2012, Detroit had approximately 40 square miles of vacant land, representing about one-third of its total area.

The proliferation of abandoned homes, vacant lots, and decaying infrastructure created large areas of urban blight, which directly contributed to depressed property values. The presence of blighted properties in a neighborhood can reduce the value of neighboring homes. This environment made many parts of the city less desirable for habitation or investment, perpetuating the cycle of low housing prices. The sheer volume of unoccupied structures posed significant challenges for urban planning and community development.

Property Values and Taxation

The economic and demographic shifts in Detroit had a direct and profound impact on property values, particularly after the 2008 financial crisis. This period saw a surge in mortgage foreclosures, affecting an estimated 65,000 homes, which further flooded the market with distressed properties. Beyond mortgage defaults, the city also faced a significant issue with tax foreclosures, with nearly 73,000 additional homes lost due to unpaid property taxes. Between 2005 and 2015, approximately one-third of all Detroit properties underwent foreclosure proceedings.

The city’s property tax system, characterized by historically high rates and assessment practices, compounded these issues. Detroit’s effective property tax rate on a median-valued home has been more than twice the national average, placing a disproportionate burden on homeowners. Between 2010 and 2016, a substantial number of properties were over-assessed, despite state law prohibiting assessments exceeding 50% of market value. This over-assessment resulted in significant overtaxation and contributed to approximately 100,000 homes being lost to foreclosure. While city officials assert that assessment practices have been modernized and are now compliant with state law, the historical impact of these policies disincentivized property ownership and investment, thereby maintaining lower housing costs.

Current Market Landscape

Detroit’s housing market is currently experiencing significant revitalization efforts in various areas, attracting new residents and businesses to the city. These initiatives have led to a gradual increase in property values, particularly in specific neighborhoods and the downtown core. For instance, the city-wide median sales price climbed by 16.3% to $93,000 in May 2024. Some areas have seen more substantial appreciation.

Despite these positive developments and rising prices in certain segments, the overall housing market in Detroit remains comparatively affordable relative to other major U.S. cities. The median sale price in Detroit is still about 76% lower than the national average. The sheer scale of the city’s past economic and demographic challenges means that a substantial inventory of lower-priced homes persists. While new developments are emerging, offering upscale housing options starting around $350,000, the broader market continues to offer accessible entry points for buyers.