One-dollar house mirrors hollow out of Detroit

Detroit bargain properties are very interesting with low-end homes being listed for as low as one dollar.

One of such listings is located at 9385 Pryor Street near Lake St. Clair. The colonial-style house with three bedrooms was built in 1905 at a busy area in the past. With a close look, what one can see is a rotten shell rather than a house. The power cabinet is exposed on the wall, broken wires dangle in rooms, and the inside walls are chipping. There are holes on the corridors on the ground floor while dead rodents and bird feathers can be seen on the second floor.

Broker Robert Hakim said, "No plumbing, no power, no kitchen and no living room. Just a shell. It is necessary to rebuild for residence."

When a middle-aged African American was asked about the neighborhood, he said, "This is a ghost city." As for the question about what local people live on, he said "bang, bang" -- shooting and robbery are common.

Those properties tell the story of decline of the "Motor City." When Detroit was rising in the 1940s and 1950s, people from different regions flocked to the city. Detroit had a population of 1.85 million in 1950. The "Motor City" declined in the following decades as many young people left while the aged reduced by natural attrition. As the population has shrunk 60 percent to some 700,000, the street is dim, the police are poor funded, the transit buses cannot run regularly while the neighborhood is roamed by drug addicts and shooting suspects.

With turn of the millennium, relocation of manufacturing results in further migration -- Detroit lost 25 percent of its population from 2000 to 2010. As migration increased empty houses and depressed housing price, the municipal government was struggling in finance. According to Detroit News, about a half of house owners in the city did not pay property tax in 2012 with accumulated amount of 131 million dollars, or 12 percent of the municipal revenue. Detroit News also reported that the city has to borrow loans to keep the municipal operation and payment of pension.

Detroit could not operate with indefinite budget deficit. Michigan State declared financial emergency of Detroit on March 1 and took over its municipal management. Detroit became the sixth city taken over by state government in the United States.

Detroit is in financial difficulty: the city has long term debts of 14 billion U.S. dollars and budget deficits of 327 million dollars. According to Bloomberg's report, the yield of Detroit municipal bond expires in 2015 rose from 7.5 percent at the end of 2012 to 9 percent at present.

"The difficulties of the city proper of Detroit are typical for rust-belt," said Matthew Gibb, deputy chief of Oakland County.

He said that auto industry in Detroit prospered over 50 years ago. With land and labor cost rising in the city, manufacturing facilities spread to suburbs and outskirts.

Among three American motor companies, only GM's headquarter is located in Detroit. Ford is now headquartered in Dearborn in southwest of Detroit while Chrysler is based in Waterford, the seat of Oakland County -- about 30-minutes to Detroit. Even parts are mainly manufactured in towns north to Detroit.

Many people misunderstand decline of Detroit as problems of U.S. auto industry, Gibb said. In fact, auto industry is in good health in the United States. The 2012 performance of GM, Ford and Chrysler set records for many years while auto industry has been a power driving the economic recovery of the United States. Sales of cars and trucks in 2013 are expected to reach 15.3 million, much higher than in 2012 and approaching the previous record of 16 million in 2007. All this seems to have no relation with the downtown of Detroit.

The Metropolitan Detroit is not much different from decades ago as the metropolitan population remains over 5 million. Gibb said the difference relies on concentration of residence. As research and development departments and parts manufacturing plants are relocated from Detroit to surrounding areas, auto industry is still in the metropolitan, though no longer in the downtown area.

In Chrysler's headquarters, many Chinese are coming to receive training classes or negotiate on cooperation. In Troy, many Chinese engineers have meetings or forums in the town of their residence, which contrasts sharply with downtown of Detroit.

In Gibb's view, the financial mess of Detroit was attributed to the wrong decisions and mismanagement of the municipal government. One of the example is: corporate tax rate was as high as 40 percent, compared with 7 percent-15 percent in the surrounding towns and cities. The corporate cost in surrounding areas was 10 percent lower than in Detroit. The lower cost was a main reason that many companies selected the other cities and towns for their operation.

Corruption and high criminal rate drove out investors from Detroit. The former mayor and police chief were notorious for corruption and other scandals. Violent crimes dispelled middle class to other areas from downtown.

Betting on auto industry alone was a wrong decision of the municipal government, said Gibb. When the city's advantages in manufacturing disappeared, there were no alternative industries or diversified economy in Detroit. As too many houses are empty and the local authorities have no fund to remove them, some empty houses have become shelters of homeless and drug dens, according to Detroit News.

Though Michigan state belongs to rust-belt, some localities have tried to develop new industries and recovered in the past decade. For example, about half of the World 500 companies have opened offices in Oakland County, which witnesses growth of biotechnology, electronics, space and aircraft, alternative energy, robots, defense and homeland security. Oakland is now one of the 10 richest counties in the United States.

As for prospect of Detroit, Gibb said that it is almost impossible to restore the past glories of Detroit. With the state appointment, Kevin Orr began his term of the emergency financial manager for Detroit on March 25. He has to cut municipal spending, negotiate with unions, sell some municipal properties and lower payment of municipal officials. The city needs three to five years to solve the financial difficulties.

But economist Michael Digiovanni was much optimistic about the future of Detroit. The professor of University of Detroit Mercy said facts prove worries about GM and Chrysler's bankruptcy wrong. Bankruptcy for a company is a process to slim and raise competency. After reducing burdens and cutting spending, Detroit will improve the environment and develop new industries while maintaining its traditional advantages such as cultural and entertainment facilities. As one of the top 20 cities, Detroit will attract young people finally.