Bids on Detroit
Estimating wealth transferred from Detroit homeowners to outside-the-city owners via tax foreclosure auctions, 2014 - 2016
I was looking at property tax bill mailing address data in Regrid (where I work) the other day, comparing rates of outside-the-city ownership of Detroit property to a few other cities in Michigan. I wound up revisiting some research I’d worked on early in the pandemic: looking into the tax foreclosure history of Detroit properties where present day ownership lies outside the city. Then I tried to estimate, for just a few tax foreclosure auction years (2014 - 2016), how much wealth (in present day home values) transferred from Detroit homeowners who lost their homes in those three tax auctions to owners outside the city as a result of tax foreclosure.
Summary of Sections & Findings:
City of Detroit assessment data shows ownership for 23% of privately owned Detroit property (~67,000 properties) lies outside the city.
Properties with owners outside Detroit have higher rates of prior tax foreclosure (2002 - 2018 tax auctions) than properties with owners inside Detroit (39% vs. 24% of properties), suggesting tax foreclosure has been a force contributing to moving property ownership outside the city.
In just three years of tax foreclosure auctions (2014 - 2016), tax foreclosed Detroit homeowners lost property worth ~$300M in present day market value. That wealth is now held by owners outside the city who own those homes.
1. Follow the Money (via Property Tax Bill)
In Detroit, per 2022 City of Detroit assessment data on property tax bill mailing addresses, ownership for about 67,000 properties lies outside Detroit — about 18% of the ~380,000 properties in the city. However that percentage should be refined for a couple reasons:
First, it makes sense to distinguish private ownership from public ownership. The Detroit Land Bank owns about 90,000 properties in Detroit — that publicly owned property shouldn’t really be in the equation.
Second, it’s very common to find homes in Detroit where, although the property tax bill is mailed to the property’s address, there is no principal residence exemption (the home may not be owner occupied) and true ownership appears to lie elsewhere — not with the resident. Call it, “ambiguous ownership”. It’s hard to confidently disentangle those cases within tax bill mailing data without additional indicators that suggest outside ownership, like recent tax foreclosure or ownership by an LLC, for instance.
If you remove public ownership from the figures above, the % of Detroit properties owned outside the city is about 23%. Trying to account for ambiguous ownership in Detroit is tough, but if it brought the rate of property owned outside the city up to 30% - 35%, that seems to me like a very safe guess. I’m going to remain focused, however, on the 23% of privately owned property that is pretty clearly owned outside the city.
2. Tax Foreclosure’s Role in Property Ownership Outside Detroit
The map showing Detroit properties with outside-the-city ownership has concentrations that clearly overlap with high-tax foreclosure neighborhoods: Warrendale on the west side, Regent Park and Yorkshire Woods to the northeast, and much of northwest Detroit:
Using tax foreclosure auction data from Data Driven Detroit (2002 - 2013) and Regrid (2014 - 2018), I found that 25,847 of 66,838 (39%) Detroit properties that are owned outside Detroit in 2022 had been in a tax foreclosure auction between 2002 - 2018. All other privately owned Detroit property (those where the assessment data does not show a property tax bill mailed outside the city) has a prior tax foreclosure rate of 24%12.
Anyone who’s followed the tax foreclosure auctions closely would probably agree that tax foreclosure, especially in the decade after the financial crisis, was a major force driving property ownership outside the city of Detroit. People like University of Michigan’s Joshua Akers have done great work on topics like this for years.
Here’s a chart showing the history of tax foreclosure amongst properties owned outside Detroit in 2022, sorted by the most recent tax auction in which a property appeared (many properties have been tax foreclosed multiple times):
The mid-2010s were clearly the high water mark for tax foreclosed Detroit properties that are now owned by someone outside the city. Who bought these properties at auction and who owns them today is surely different in many cases. But it’s likely these properties overwhelmingly transferred from an auction buyer outside the city, to another buyer outside the city.
It’s also worth noting that the lower totals of tax foreclosed properties owned outside the city reflected in more recent tax auctions are not an indication of waning outside interest in Detroit property, but rather of much smaller auctions. The more recent the auction, the higher the share of properties sold that are, today, owned by someone outside the city.
3. Transfer of Ownership, Transfer of Wealth
I’ve discussed previously tax foreclosure’s role in eroding homeownership in Detroit:
We also know that, amidst the pandemic, home prices have soared in Detroit, with the median price recently topping $100,000.
So, this transfer of ownership via tax foreclosure has also been a transfer of wealth — but how much?
(No need to rehash it, but a quick reminder how needless the vast majority of these tax foreclosures of Detroit homeowners were, given that almost all these homeowners were qualified for 100% property tax exemptions due to poverty which would have eliminated their property tax bill altogether.)
Using Detroit assessment data for principal residence exemptions (indicative of homeownership) from 2014 as well as Motor City Mapping data from 2014 - 20163 to gauge occupancy of homes, I found ~9,700 owner occupied Detroit homes that sold in the 2014 - 2016 tax auctions.4
Of those 9,700 owner occupied homes sold at auction, ownership for 6,810 of them (70%) appears to lie outside Detroit today, per 2022 assessment data on tax bill mailing addresses and ownership.
Tax auction sales data from the 2014 - 2016 auctions show the average purchase price of those 6,810 homes was just $5,565.
Between 2019 and Q1 of 2022, 579 of the 6,810 homes (9%) show an MLS-recorded sale at an average sale price of $53,000. That’s quite a bit less than home sale prices across Detroit in general today — likely reflective of weaker demand for homes within the kinds of neighborhoods that have high tax foreclosure rates. Still, it’s nearly a 10x return on an initial investment of $5,500, to say nothing of the rent that could have been collected, too.
I also looked at US Postal Service vacancy data from Regrid to determine how many of these previously-tax foreclosed owner occupied homes are still occupied by someone (likely a renter) today. A vacant home is typically more distressed than an occupied one and might not warrant an equivalent price. Tax foreclosure is also notorious for emptying once occupied homes.
Surprisingly, though, I found that 85% of owner occupied homes purchased at auction in 2014 - 2016, and today owned outside Detroit, are occupied according to US Postal Service data as of May 2022: 5,761 of 6,810. That may suggest a better, more resilient, investment is found buying a property out from under a tax foreclosed homeowner who may have lived in, and cared for, a property.
As a rough measure, applying the aforementioned $53,000 average sale price across the 5,761 Detroit homes purchased in tax auctions 2014 - 2016 that were owner occupied and are occupied today as well (not wanting to include vacant homes in the equation), produces a rough total market value of $305,000,000.
In other words, a wealth transfer from Detroit homeowners to owners outside the city of more than $300M. And that’s just from three years worth of Detroit homeowner tax foreclosures.
As I mentioned, I worked on this topic a bit at the beginning of the pandemic, too, and put together a map at the time (mid-2020) showing where property tax bills were mailed at that time for about 4,000 owner occupied homes purchased at auction in 2014 - 2016. The maps show tax bill mailing locations regionally, nationally, and internationally, to give a sense of where this ownership sits.
There were ~150,000 tax foreclosures in Detroit between 2002 - 2018. Of those, around 70,000 did not sell and are owned by the Detroit Land Bank today. Removing the 26,000 additional tax foreclosures that are now owned by someone outside Detroit, that leaves about 54,000 non-DLBA-owned tax foreclosures. Divide that by all property neither owned by the DLBA (~90,000 properties) nor owned outside the city (~67,000 properties) and you are left with 54,000 / 228,000 = 24%.
Again, I would note that the “owned outside Detroit but tax bill mailed to property’s address” issue is probably inflating this 24% figure as there are likely thousands of properties that belong in the “owned outside Detroit” column due to that phenomenon.
The original citywide survey was completed in 2014, but many properties were resurveyed between then and 2016. I used the most recent data available.
This figure differs from the totals in the chart above showing total homeowner tax foreclosures because the chart shows all homeowner tax foreclosures whereas I’m only looking for instances of homeowner tax foreclosure where the home was purchased at auction. Not all tax foreclosures sell.