The $20,000 house problem solution

Yes, you can buy a house for under $20,000 in Dayton. I bought three of them.

The problem is that our system isn’t set up for buying $20,000 homes. In fact, banks don’t want to give loans on them, insurance companies don’t want to insure them, and for the most part, people don’t want to live near them- for fear their “comps” will be brought down- devaluing their home.

And I’m talking about the homes that are habitable- not shells, waiting for demolition.

The city is backed up with a demolition list that will never get cleared. We’re spending an average of $11,000 to tear each one down- with no real return on that investment. It’s money down the drain.

In the meantime, we’re giving incentives to build new units to people like Sims Development, and Crawford Hoying, to build more housing. Desirable, “market rate” housing. The problem is- our population is stagnant and declining- not just Dayton proper, not just Montgomery County- but the entire state of Ohio. We’ve lost congressional seats because of it.

What happens when you add housing inventory when you have declining population? Simple rules of supply and demand apply- housing inventory loses value, market gets flooded. The other problem is that the inventory isn’t exactly lining up with the demand. Poverty isn’t decreasing- but the supply of low-income housing is decreasing as subsidies have been cut. Numbers of jobs that can afford to support a normal mortgage have decreased, young college-educated home buyers are already carrying significant college debt. If this sounds like the setup for another economic collapse based on a screwed up housing market, you’re paying attention.

A simple solution

Currently, one of the economic measurement tools that economists love to bandy about is “new home starts.” A strong construction market is considered a jobs stimulator, since the construction industry is still considered a low-tech, blue-collar employment engine- i.e., you don’t need a college degree or even a high school education in their minds to build homes. The reality is you don’t even have to be an American anymore to build homes- with immigrant labor owning the roofing, sheet rocking and masonry work forces for most building developments. That’s both illegal and legal immigrants by the way

What is missed is the effect on supply.

What Ohio should do is put a moratorium on new unit construction unless the state has an increase in population exceeding 2% annually. The only way to build new units, is to buy up and demolish old units with a ratio of one structure for every 2,500 square feet of new construction. The “structure” definition could be variable based on location- more on this later. While this would add approximately $10,000 to the cost of each normal sized new building, it decreases inventory and in the end helps drive up property values.

The worst homes would be demolished first, and the values of marginal homes would rise as new construction credits rise. This would help low-income people recapture some of the value sucked out of their neighborhoods by the foreclosure crisis. It would also stop government from diverting money for services to making empty lots.

Along with the demolition credits, the state could issue credits to rehabbers- for taking old buildings and renovating them- effectively incentivizing rehab. The credits for rehab- would be at double the rate of demolition- i.e., rehab 2,500 square feet, get to sell the equivalent credits of 5,000 square feet of new construction. Why this incentive? Because rehabbing old infrastructure and bringing it back online, doesn’t require government to run new water and sewer lines, nor does it require adding police patrol areas- or, even in the case of infill new construction that wouldn’t require these either- it doesn’t fill up a landfill with demolition debris. It also makes it more affordable for rehab which often has higher costs due to compliance with new construction code .

Incentives can be placed by changing the credit awards structure- with some neighborhoods getting double credits for demolition, and others, fractional credits. Same can go for rehab projects.

Even as population begins to grow- the credit system can be kept in place based on where you are building. Any place where new utilities or infrastructure is required- would continue to require trade credits- infill to existing developments, no. If your county isn’t growing in population, swaps will still be required.

This system is sort of in-place with Historic Tax Credits- but generally is only used on large-scale development. The idea of this new system is to force value back into the worst communities where developers haven’t gone because of the policies of banks and insurance companies.

Do you have a better idea?