African-American homeownership has fallen further in Michigan than in any other state since 2000, and a growing number of low-income renters in Metro Detroit are “being squeezed from all sides” when it comes to finding affordable housing.
Those are two just two notable conclusions from a series of reports released by the Urban Institute this week about major issues in Southeast Michigan’s housing market.
Home ownership rates for African-Americans declined nationwide in the wake of the Great Recession. But in Michigan, with its historically high level of black home ownership, the drop was steeper—from 51% in 2000 to just 40% in 2016.
Wayne, Oakland, and Macomb counties experienced the largest drops in the state. And African-American homeowners aged 45-64 were the hardest-hit, with home ownership rates falling 18%.
Urban Institute research associate Mark Treskon says the researchers identified two major issues that stand in the way of reversing the trend, and returning to a “virtuous cycle of building wealth through home ownership” for African-Americans: the rise of land contracts, or rent-to-own housing arrangements; and property tax foreclosure.
“Those are two big pressure points that the authors really identified as things that have to be paid attention to if we’re going to rebuild homeownership in the city and region for African-Americans,” Treskon said.
Both have been particular problems in the city of Detroit. In the wake of Great Recession, a combination of economic hardship and over-assessed properties—in a city where property taxes are already high in comparison to income levels—led Wayne County to foreclose on more than one in three Detroit properties since 2003, according to one of the reports.
This dynamic of low housing values and mass displacement from both mortgage and tax foreclosures has led to a rise in land contracts. Land contracts are offered as alternative arrangements for aspiring homeowners in areas where banks are typically unwilling to offer traditional mortgages.
But those contracts lack many of the traditional protections afforded to mortgage borrowers, Treskon says. For example, if a borrower misses a payment, “it could enough to kick you out even if you’ve nominally built up a lot of equity.”
The report suggests adding a number of protections for land contract borrowers, including ensuring that land contracts are registered, introduce legal standards for the agreements, increase eviction protections, and require third-party appraisals so that land contract buyers aren’t buying homes at wildly-inflated prices.
And while tax foreclosures are down in Wayne County from their peak in 2015, they remain a problem and continue to erode African-American home ownership. The report suggests state and local governments make it easier for homeowners facing foreclosure to make it easier for homeowners to enroll in payment plans, permanently reduce penalty interest rates on payment plans, and communicate more effectively with homeowners facing foreclosure.
This is part of the dynamic that’s contributed to an increasing number of renters in Southeast Michigan. But the supply of rental housing, especially affordable rental housing, is not rising nearly enough to keep up with demand.
“Detroit and its surrounding areas are losing affordable and adequate housing stock, whether through dilapidation and demolition of housing or through rising rents that make what once were affordable properties unaffordable to lower-income families,” the Building and Protecting Affordable and Adequate Rental Housing report says. “The region’s lower-income renter households are competing against increasingly higher-income households for fewer units.”
“There’s a lot more people with lower incomes looking for affordable rental housing than can actually find it. That is as bad or worse in the suburbs, according to some metrics as it is in the city of Detroit,” Treskon says. “There’s this disconnect between maybe what is being produced, and the cost of what’s being produced, and what people can afford.”
The researchers stresses “the importance of both new construction and the preservation of existing affordable housing.”
“Since, in general, it costs more to build and maintain affordable housing than what lower-income renters can afford to pay, new affordable developments need a way to close the gap between costs and revenue,” says the report.