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Comment by csense | Hacker News Reader

The author really wants to turn this into a race thing.

The reality is that these homes are unprofitable investments especially in the short-to-medium term. No sane banker wants to make an unprofitable investment. The only way the investment gets made is someone who gets extra intangible utility from the investment (e.g. they like the neighborhood, close to family, etc.), has a longer time horizon, and lots of extra money to support the short-to-medium term financial costs.

It's not a race thing. It's a money thing -- banks and investors will steer a wide berth around people considering clearly unprofitable investments, so those investments will frequently not get made, and when they do, they will tend to be made by people who are willing to put up their own money.

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The article explains it itself, even though it metaphorically apparently doesn't want to listen to itself:

"Should someone take an interest in buying one of these homes, it might be priced as low as $500 or $1,000.... And the cost of rehabbing these cheap houses and making them livable can range from $50,000 to $90,000 for a small bungalow. Renovation will cost more than these homes will sell for."

Emphasis mine.

You simply can't mortgage a house like that, if the owner intends to renovate for living in it. There's no collateral. Of course it's a cash-only deal... what else could it be? What mortgage terms are we condemning the banks for not writing, exactly?

Should the city continue reviving, these property values will go up. Once the property values go up, the banks will be able to have collateral, and mortgages will resume flowing. But it will do all sorts of harm to try to push the banks to short circuit that process. Are we really demanding that banks write mortgages to poor minorities that they will basically have no ability to service if they experience the slightest economic disruption? Is that really helpful to anybody? Aren't we basically still in the recession we created by writing mortgages far in excess of any underlying value?

I'm all for helping the poor, but chaining them with unserviceable debt or forcing the banks to get screwed isn't "helping the poor".

Isn't that exactly the role of a (real estate) developer? To buy up a large amount of land, so that the improved properties therein exist in a neighborhood of similarly-improved ones? So that each one is worth more than if you did this as a one-off?

As I understand it, the reason these will only sell for 90k once renovated is because that house would be an island of desolation. A large-scale developer can fix that.

"Give me some money so I can create value here" is what you say to investors, not creditors, and putting someone in that role will make them want a much bigger upside than they'd get from a secured loan.

Right, but the point is, it's wrong to say that "the mortgage industry" is holding this up if there's another group that would be more than willing to invest the money.

The big developers all have their own business models that have been iterated on to maximize profit. For example, one might look at coastal areas to turn into resorts. They have teams of people that examine all the angles. How amenable is the local government to outside investment, can they get tax breaks, looking at the land itself to identify issues with building.

I believe Detroit is a veritable no-man's land so far as this kind of risk management is concerned. Cities are usually prime targets for developers, one can assume a fairly efficient market as far as real estate development is concerned. That there's no action can reasonably indicate that there's no potential there, and not that nobody's looked at it.

Then the consensus of the poor people in the area becomes "the government forced us out of our homes and sold them cheap to yuppies"

The poor weren't forced out by the government. They're forced out by shifting economic tides, causing them to be foreclosed on, and their home then sold to someone on better economic footing.

To blame the government is silly, unless you want to blame them for not implementing robust safety nets. That'd be a fair argument.

How about government policy allowing decent-to-well paying manufacturing jobs to be outsourced to 3rd world countries?

Not that cars aren't still built in Detroit, but there was still a lot of supply chain that got outsourced. It's called the rust belt for a reason.

it's not about "government", it's about "consensus of the poor people"

50k to 90k for the renovation of bungalow? These numbers just don't make sense. 90k buy you a mansion in developing countries and even in western Europe you can get a small (say 100 square meters) pre-fab stone house, minus floors and appliances.

I think the only valid point this article makes is "mortgage is hard to get at the moment". Yes, any kind of (sane, i.e. no loan shark thing) credit is currently hard to get anywhere in the first world.

My guess is that those numbers are for "taking the entire house pretty much down to its foundation (maybe saving just the frame) and paying market rates for materials and labor to rebuild it". Which is, unfortunately, what a lot of these houses take. Motivated buyers can invest the labor themselves, but materials are unavoidable and not cheap.

It may not feel like you're really doing that much to maintain your house when you live in one, but they can go downhill fast when unoccupied.

Yeah, that's kinda the benchmark for flipping anything in a generic US suburb.

40k for a kitchen, 10k each for a couple bathrooms, another 10k for paint and flooring, some landscaping, maybe roof or siding, and there you are.

Have you ever tried to rehab a house? $20k-$40k for a modest kitchen is not out of the ordinary.

No, I have not. But I helped creating a lot of not-for-profit events and setting up some hacker spaces out of rotten spaces. 20k for a kitchen? Seriously? I call that bullshit. Every chef who would dare to ask for that would have gotten the finger. You can create a functional kitchen for 0.5 - everything above that is luxury, which I'd love to have (I'm a passionate amateur chef) - but I'd never ever would invest 20k into that upfront.

FFS, one of the most well known places in Berlin was started with not more than 12 crates of beer with a board on top to simulate a bar (Bar 25).

I'd love to know where you're buying from, that you can get a range, oven, refrigerator, cabinets, and counter for $500. (I'll be generous and leave the dishwasher off.)

I have an East SF Bay developer friend who told me in California you can't build a house for less than about $150k (just the structure) because of permitting costs and building codes. It doesn't surprise me major renovations for a Detroit bungalow are in the $50k - $90k range.

While I was getting similar inklings from his writing the real issue reveals itself throughout the article.

Detroit's recovery is hindered by government regulation at city, county, state, and federal levels. At the end they mention Detroit cannot get it MSAs redrawn until 2023!!! Really?

Throw in your concern, change is only happening because private corporations, individuals, and even the union, are losing money trying to jump start an area and having to do so because the regulatory structure is working against recovery.

Note to government, if you want to end blight you are going to have to vacate government debts against the property with regards to the new owner. Rules would have to be put in place to prevent obvious gaming of the system, but to saddle buyers with costs they didn't not incur only sabotages your stated goal.

tl;dr the regulatory structure is sabotaging Detroit's recovery, not the mortgage industry.

The main reason the homes are unprofitable investments is 'a race thing'. Metro Detroit has had a stable population for the last 50 years— the reason so many houses in Detroit are abandoned is because of near-total white flight.

I don't know enough about this to comment, but just to get a baseline, what things do you consider _are_ a race thing, in the U.S?

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