$30,000 Houses: Smarter to Raze than Restore

When the share price of a company traded on the New York Stock Exchange (“NYSE”) falls below $1, it faces the prospect of being dropped from trading (“delisted“).

Presumably, the rationale is that such companies are in extremis, and, for the health of the broader market as well as more viable concerns, need to be culled.

So, too, there should be an analogous principle for homes on the Multiple Listing Service (“MLS“). Once a home’s list price falls below a given amount — say, $30,000 — it presumptively is in such bad shape that: a) no future owner is likely to find it cost-effective to restore; and b) given (a), the home’s only remaining role is to sit, abandoned and deteriorating, dragging down the value of surrounding homes.

Better to cut out the cancer before it spreads.

Sadly, in many cities nationally, foreclosed homes have fallen so dramatically in price that the cost to buy and raze them may now be less than the cost to board and police them.

Locally, more than 160 Minneapolis homes are now listed for less than $40,000.

Assuming that their fair market is actually about $30,000 apiece, the city could buy them all for less than $5 million. For another, say, $5 million, the city could, through its eminent domain power (which requires due process and fair compensation), assemble contiguous parcels that could either be turned into parks and green space, or redeveloped on a project-by-project basis (“let 1,000 redevelopment plans bloom??”).

Such an initiative would have three immediate, widespread benefits:

One. Remove a pox on the local housing market.

Foreclosures are to a healthy housing market what gangrene is to the body: a spreading, mortal threat.

Financially, foreclosed properties depress surrounding properties as much as 50%. Why? Because no one wants to live on a block with a neglected and deteriorating house — let alone three of them. Don’t think foreclosures are contagious? Let me give you a guided tour.

Like Faulkner’s line about “pain’s surcease,” removing a negative IS a positive.

Two. Razing the worst of the worst will remove a large and growing stress on city resources (police, fire, cost of boarding abandoned homes, etc.)

The city’s current strategy — trying to recoup its oversight costs by hitting bank-owners with a $6,000 abandoned home fee — ultimately acts as a tax. Such taxes tend to get passed through to buyers — or taxpayers — one way or another.

As the saying goes, “better to drain the swamp — get rid of the offending homes — than to swat mosquitoes.”

Three. Create productive, aesthetically pleasing space — open and otherwise.

If done intelligently and well — if — such a project could actually make a positive impact. Think of it as an incubator for micro-developments. Or as a blank slate for future Frank Law Olmsted’s. Or as a canvas for new home designs that incorporated new, cost-effective technologies (built-in electric car ports? communal “smart” gardens?). The plain truth is: the bar’s pretty damn low.

Ironically, at least in Minneapolis, much of the most dilapidated housing is concentrated in well-located, close-in neighborhoods with otherwise good infrastructure.

Which raises the inevitable attacks.

Critics will no doubt argue that such an approach tears apart vulnerable neighborhoods, destroys affordable housing, or will otherwise aggravate rather than solve the housing market’s worst problem(s).

Such criticisms may have been valid once, but not now.

An urban neighborhood full of $30,000 homes isn’t a neighborhood any more. It’s a no man’s land at best, a crime and war zone, at worst.

And the only way to make $30,000 homes habitable again is to spend a multiple of that fixing them. (Substitute “banks” for “homes,” “profitable” for “habitable,” add seven zeroes — and you’ve got the nation’s banking crisis in a nutshell.)

By definition, homes selling for $30,000 need all new major mechanical systems, new roofs, windows, appliances, siding, landscaping and a host of other fixes. They also frequently require remediation for water intrusion, mold, or other damage associated with neglect.

Far better to spend that repair money on something altogether new, and actually get something for it in return, than pour good money after bad.

About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.

Leave a Reply