Social Sustainability in Detroit and Beyond
Mark Skidmore
Michigan State University
Presented at
Integrated Network for Social Sustainability
April 9, 2015
Overview
• Detroit
• Land Values
• Tax Delinquency
• Property Taxation and Foreclosures
• Publicly Held Parcels Growing
• Fiscal Sustainability in a Broader Context
• Government Debt and Unfunded Liabilities
• Private Debt, Bubbles, Financial Crisis, and Growing
Income Disparity
Detroit
http://www.lincolninst.edu/pubs/2467_Will-a-Greenbelt-Help-to-Shrink-Detroit-sWasteland-
Background and History
(Detroit Population)
Detroit Population Trends, 1890-2010
Detroit Racial Trends, 1920-2010
Detroit 1940s and 1950s
Detroit Today
Causes (and Effects)
• Manufacturing Decline/Global Forces
• Great Recession—Real Estate Collapse
• Racial Tension
• Policies (land use, tax rates, public services, schools)
• 40% of Street Lights Are Non-functioning
• Highest Crime Rate Among Large Cities
• 47 Minute Police Response Time (national average=11 minutes)
• Corruption
Detroit Financial Situation
City of Detroit Balance by Fiscal Year (in millions)
True deficits unrevealed by “debt restructuring”,
and underfunding retiree benefits accounts
Major Revenue Sources (millions of real $)
Detroit General Fund Major Revenue Sources, FY93-FY10
Total Debt
and Unfunded
Liabilities =
$18 billion
or $68,000 per
Detroit household
(Median Household
Income~$25,000)
Bankruptcy
54% Tax
Delinquency
Detroit Economic and
Demographic Information
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•
•
•
•
•
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•
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Median H/H Income
Poverty Rate
Population
Population 16 years and over
Labor Force
Labor Force Participation Rate
Employed
Unemployed
Not in Labor Force
Unemployment Rate
Social Security (Disability)
Social Security (All Types)
Population over 65
~$25,000
~
38%
~701,000
~554,000
~298,000
~
54%
~216,000
~ 82,000
~256,000
~
18%
~ 34,000
~148,000
~ 83,000
Detroit Central City Taxable and Nontaxable Properties, 2010
Land Value in Detroit
Source: City of Detroit Assessor data, 2010
Detroit Housing Price Index vs. Consumer Price Index
Case-Shiller Housing Price Index-Detroit 1976-2013
160
140
120
100
80
HPI
60
CPI
40
20
Source: Core Logic and Bureau of Labor Statistics
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
0
1976
• Collapsed Property
Market
• Many Vacant Property
Sales
• Opportunity to Learn
about Land Values in
Declining Urban Area
• Where is Land
Valuable in the City?
• Viscous Cycle of Tax
Delinquency
• Public Ownership of
Parcels Is Increasing
• What Policies Might
Help Stabilize the
Market and Increase
Land Value?
Theory
1. Urban Land Value Gradient
• Monocentric City (Muth, 1969; Mills, 1972)
• Modifications
• Non-monocentric City (Dubin and Sung, 1987; Ahlfeldt (2010)
• Parcel Size and Distance from CBD (Colwell and Munneke,
1997)
Augmented Land Price Function
Β = Price of first square foot of a parcel
A = Area elasticity of price
c = Distance from the city center
b = Distance from nearest city border
Data and Methods
-The City of Detroit’s Assessment Division provided parcel-level data
for this research.
-The raw data include information for 444,183 real and personal
property parcels, of which we focus on vacant land parcels.
-In total there are 93,786 vacant parcels, of which 47 percent are
owned by the City of Detroit or some other public entity.
-Omit observations for various reasons
-Remaining are 3,788 parcels, 4.6 percent of total vacant parcels
sold during the 2006-2010 period.
-Use regression analysis to generate land value gradient
-land value = f(distance from city center, distance from border,
other factors)
-standard regression with modifications and locally weighted
regression
Estimated Land Value Gradient
Predicted Land Values from Locally
Weighed Regression
Conclusions
1. U-Shaped Land Value Gradient
2. Evidence of Packard Plant Effect (negative externality)
3. Informs Vacant Land Management Decisions—Decide
which Land to:
• Return to Private Ownership
• Hold in Public Hands for the Medium to Long-term
• Permanently Remove from the Market (green space)
Broader Perspective: Local, State, and
Federal Government Obligations
• State and Local Governments
• Novy-Marx and Rauh (2013)
• Fully funding state and local government retirement obligations
would require a tax increase of $1,385 per household per year
• Federal Government
• Recent Year over Year Deficit ~ $1 trillion
• Total Debt–
• $18+ trillion or ~$155,000 to $160,000 per household
• Unfunded Liabilities
• ~$200+ trillion (Kotlikoff) or $1.7 million per household
• Taxes would have to increase by about 60% to pay for promises
we’ve made
International Data on Public Debt
Debt as Percent of GDP, 2012
"Long term, it's not so
much a financial crisis
that we face. It's more
a political and social
crisis because these
promises that we have
made for ourselves will
be broken."
Stephen King HSBC
Bank, UK
Expansion of Private and Public Debt
all debt--household, finance, corporate and government
Is this debt
trajectory
sustainable?
What happens if
debt can no
longer be
generated at this
rate?
Monetary Expansion
Global Central Bank
Balance Sheets
Bubble?
Debt and Unfunded Liabilities
• Detroit’s Debt and Pension Obligations Overwhelmed
Fiscal Capacity
• Many State and Local Governments in US Face Similar
Challenges
• Federal Government, by some Measures, Is in Worse
Shape.
• Most Western Nations (including Japan) Face Large
Debt/Liability Challenges
• Public and Private Debt Trajectory Unsustainable