Poor Neighborhoods Make the Best Investments

Detroit is implementing a program along these lines. They are selling properties in so called &#x27;bad neighborhoods&#x27; and mandating that they be rehabbed and renovated within 6 months to code.<p>The average cost of rehabbing a home bought for $1000~$2000 say is $50,000. Have a look at the website:<p><a href="http:&#x2F;&#x2F;www.buildingdetroit.org&#x2F;" rel="nofollow">http:&#x2F;&#x2F;www.buildingdetroit.org&#x2F;</a><p>The &#x27;Rehabbed and Ready&#x27; (<a href="http:&#x2F;&#x2F;auctions.buildingdetroit.org&#x2F;RehabbedAndReady" rel="nofollow">http:&#x2F;&#x2F;auctions.buildingdetroit.org&#x2F;RehabbedAndReady</a>) homes demonstrate the transformation from a $1000 to a $50000 property.<p>To my eyes this approach closely matches the 10% target described in the article, and seems to be a smart way to build a tax base.

That&#x27;s quite an interesting take! The differences in older and newer city planning regarding street widths, densities, mixing of zoning, etc. are quite drastic.<p>However, I believe it will be at least 20 years before my local municipality will be able to learn from any of these lessons. The planning meetings for any type of development are dominated by those with the time to go to them mid-day: retired people that set up the initial zoning and are dead set against any potential change. The same person who is super concerned about negative impact on property values will in the next sentence rail against those wanting to do development for their &quot;greed.&quot;<p>I really gotta move out of California...

&gt; These places are built all at once to a finished state. Today is peak wealth; it&#x27;s all downhill from here, regardless of how much public investment is made.<p><i>This</i>. I&#x27;ve struggled to phrase why most developments seem so terrible, or sterile, or what-have-you, while the areas that developed over time seem so much more... Alive? Valued? This is an amazing way to phrase that difference - it&#x27;s <i>possible</i> to invest yourself in places that are not at peak value.

This blog, StrongTowns.org, consistently has some of the highest-quality, focused content that I&#x27;ve seen in a long time. I&#x27;d encourage donating if you also got something out of it.

In short: the poor neighborhoods have the most low-hanging fruits, and can be improved in obvious ways using small, low-risk investments.<p>Affluent neighborhoods are built in a way that cannot be easily improved upon.

There are investment groups like <a href="http:&#x2F;&#x2F;www.ohiocashflow.com" rel="nofollow">http:&#x2F;&#x2F;www.ohiocashflow.com</a> that go into the rust belt and buy up homes in the poor neighborhoods, return them to being inhatible and then sell them off as turn key rental properties.<p>With the way automation is taking jobs I wouldn&#x27;t be surprised if these kinds of low income housing investments turn out to be solid cashflow producing investments.

It turns my stomach to say this, but I think the reason why these ideas aren&#x27;t implemented is the people in the &quot;poor&quot; neighborhoods are of a lower social class than the people running the cities in question.<p>I very much doubt a legislator or city council could muster money from Us to spend on places where Those People live, even if it makes financial sense. I would love to be wrong about this.

Many economists argue for taxing every equal sized plot of land the same (vs. taxing based on assessed value). There are a lot of benefits to doing it this way, but the main one is that it encourages efficient land use. If a 40 story high rise with 200 apartments in it is taxed the same way as a lot with 6 ranch style homes, then you&#x27;re going to incentivize building up.

I don&#x27;t understand the author&#x27;s argument. Is it &quot;spiff up the &#x27;poor&#x27; neighborhoods so the inhabitants will pay more property taxes?&quot;<p>When I look at the map, it looks like most of the city is lightly in the red and it has several extremely red areas which may drive most of the losses. What is driving those? Are they stadiums or large government facilities that aren&#x27;t taxable? Or maybe middle-aged neighborhoods with severe drainage problems that can&#x27;t withstand a hurricane?<p>What’s driving the difference between the lightly red and the green areas? Some of the comments here propose that people in those neighborhoods aren&#x27;t asking for improvements or the infrastructure is naturally cheaper. It could also be a city-favorable tax to liability balance since the larger portion of the green area is rented and thus doesn&#x27;t get a homestead property tax exemption or growth cap.<p>&quot;Putting in street trees, painting crosswalks, patching sidewalks, and making changes to zoning regulations&quot; might put a city in better financial position if they think gentrification makes sense and is possible. But that by definition is not a social justice argument.

Alternate cynical title from the red&#x2F;green map: Towns pump money from poor neighborhoods and dump it into affluent ones.

I would love to these analysis made for Europe.<p>Here in Italy the oldest part of the city are usually the most popular and most expensive.<p>We don&#x27;t have THAT much land over here and regulation are pretty strict on what you can build and where...

Isn&#x27;t the article describing the classic Gentrification move?

The reason why poor neighborhoods are profitable is because the city doesn&#x27;t spend money on them. If the city spent money on them, they&#x27;d be less profitable.<p>There&#x27;s no reason to expect that the city spending more money on a neighborhood increases any tax returns.

This seems tautological.<p>Those areas are &quot;profitable&quot; because they are using fewer services.<p>If you invest more there, they would no longer be &quot;profitable&quot; -- and increased investment may not increase future &quot;profits.&quot;<p>I think this essay falls down in part because it&#x27;s nonsensical to use these private industry terms when discussing municipal governance. I want my city to concern itself with equity and quality of life - not which citizens are most profitable.

It seems like what they&#x27;re saying is that taxation per square inch is higher in poorer areas, and that areas that are doing better have less taxation. Could it be that the areas that are doing better are doing better for that reason?<p>A land tax instead of a property tax seems to be the way to go. This would avoid punishing people from improving their property.

Tell that to Robert Moses. His slum clearance work turned poor neighborhoods into destitute neighborhoods.

A very insightful (but needless rude) comment from a user called Memetic:<p>&quot;No sh*t, it&#x27;s called gentrification and has been around forever. Thanks for reinventing the wheel.&quot;

[This comment has been removed since it was off-topic]

Be aware of unintended consequences of improving neighborhoods.<p>If poor people can&#x27;t afford to live in nice neighborhoods, and we transform their surroundings into nice neighborhoods, they won&#x27;t be able to afford to stay. Richer people will move in and drive up the prices.<p>These effects are likely to be amplified in towns with high demand for housing and low supply.

Poor neighborhoods are latent negative pressure. In time things will flow back to them because they have no better choice.

For development of an area, civic infrastructure has to be developed. When there are people living in an area govt will start providing necessary infrastructure and also presence of people reduce crime. Poorer people migrate to the empty areas first.

OMG, apples and oranges terrible analogy. The best monetary returns investment in the real world is typically accomplished rehabbing the worst home in the best area because of the undeniable market power of comparables... the nice, expensive homes will boost the value of a now more attractive-seeming home by carefully-chosen upgrades which deliver maximum ROI, i.e., looks (good front landscaping), wow features and&#x2F;or adding area&#x2F;rooms; not sinking cash into pricy, low ROI money pit&#x2F;white elephant work or hoping a nicer-seeming home in a bad area will magically not be depressed by terrible comparables.

I wonder what Strong Towns would think of a land value tax.

Investment can be made by anyone but it must be in a proper way. Few of my friends have also done the same and today they are taking the benefit of those past investment.

Just wait for gentrification to hit the area. Then the $50k houses will be worth $650k+.