Some cities are facing a very different housing crisis
As millennials move out of stagnant cities houses go vacant
While a housing crisis rages in high-priced coastal cities — where modest homes can sell for in excess of $1 million and governments promote affordable-housing options — an entirely different problem is playing out closer to the country’s interior.
In America’s Rust Belt and parts of the Northeast, millennials and young professionals are leaving rather than moving in, and populations there are dwindling. Among those who remain, both the residents and the houses are aging.
There is no shortage of homes in Akron, Ohio, for example. But most of them are old, too many sit vacant and hundreds of abandoned houses are torn down each year. Akron’s population has dipped from nearly 300,000 residents in the early 1960s to fewer than 200,000 today.
Rather than engaging in managed decline, the city last year approved a 100 percent exemption on the added property value of any new home construction or renovation valued at $5,000 or more for 15 years. This means that someone who built a new home on a vacant lot would pay taxes only on the value of the land, saving thousands per year in the process.
“People respond to incentives,” said Akron Democratic Mayor Dan Horrigan, who grew up in the city and still remembers the vibrant neighborhoods and bustling streets of his childhood. “We have a city of 200,000, with the capacity for 300,000.”
Major cities such as Detroit, Cleveland and Buffalo, N.Y., plus parts of Pittsburgh, Philadelphia and other cities, also face home prices that are too low, leaving little financial incentive to build new homes or improve old ones, because money invested can’t be recouped.
The low prices also make it diffi-
cult to build wealth through equity — a key path to reaching the middle class.
To combat the issue, municipalities have turned to residential tax abatement programs designed to spur housing development — with or without population growth. Tax incentives are more widely known in commercial projects, such as sports stadiums, but can be created for residential developers and individual homeowners, as well.
Benefits are already being felt in Akron. In 2015, more than 500 Akron homes were torn down, and fewer than 10 were built. Today, there are more than 1,000 units of new housing in some stage of development, which leaders hope will attract higher-income buyers drawn to city life.
The abatements can save thousands in taxes per year. That’s a powerful incentive in Akron, where 80 percent of those who work in the city and earn $40,000 and above do not live there. Although tax abatement programs often target only certain underdeveloped neighborhoods, in Akron, the entire city qualifies.
“Tax abatement programs here have been very successful,” said John Corral, a lifetime northeast Ohio resident and an agent with Howard Hanna Real Estate Services.
“It’s one of the first things people ask about when they’re looking for a home,” he said. “With a 15-year tax abatement, a homeowner can easily save $4,000 per year in taxes. Do the math. Over a 15-year period, that’s a $60,000 savings.”
Corral added that for young locals, the dream is typically to move elsewhere — to Chicago or maybe New York City. But the affordability and incentives might be enough to keep a few more at home.
At the other end of the spectrum, downsizing seniors are another group who can benefit. Peter Zito, 66, a computer programmer, said Akron’s program gave him the idea of building a house in his neighborhood rather than moving elsewhere. He said the rest of the homes on his block were built between the 1920s and the 1950s.
“Since I already owned the lot, the abatement allowed me to stay in the city, which was desirable to me,” he said. “There’s been quite a bit of new development in the area, and it’s nice to see that happening in Akron.”
Effects of the abatements might not be massive, but they can be crucial. Mike Rosentraub, a University of Michigan professor who has studied the incentives, said that one reason Detroit was forced to file for bankruptcy protection, whereas Cleveland did not, was because Ohio law allows for more aggressive residential tax abatements that helped keep the city financially afloat.