Detroit - What are your thoughts / questions / fears about investing in the City of Detroit?

[Dan Gheesling]

When you hear about Detroit Real Estate most people get scared and picture burned down buildings, blight, etc. Myself included.

One of my initial fears was that I wouldn't get my money back out, and that the renters wouldn't pay on time or at all based on what I read in the news/online/etc.

Whether you invest in Detroit or not, what are the biggest questions/problems/concerns do you have about investing in Detroit?

To be completely transparent I am working on creating an online resource for investors just to learn about the city (not be a sales page, or sell properties etc) for those who are interested.

Thank you for your honest thoughts and questions, it will really be a huge help into really understanding the questions people have so I know to spend time sharing that information opposed to others.

If there is anything I can do to help in return for you answering this post honestly do not hesitate to ask!

[Alvin Neal]

How Socialism Came to America...
and Destroyed Detroit

In 1961, the last Republican mayor of Detroit, Louis C. Miriani, lost his re-election bid. He probably would have lost to anyone who ran against him because he was known to be a crook. He later served 10 years in prison for tax evasion.

The man who defeated him, Jerome Cavanagh, was a Democrat. He ushered in a new kind of politics in Detroit. Cavanagh, who was white, got elected by promising to give Detroit's African American population the civil rights they deserved. But he didn't stop there. Seeing the political advantage to serving this community's interests, he did all he could to bring government benefits and government spending to Detroit's black community.

Cavanagh brought socialism to Detroit.

Mayor Cavanagh was the only elected official to serve on President Johnson's Model Cities task force. The program was modeled after Soviet efforts to rebuild whole urban areas in Eastern Europe. At the time, this centralized approach to urban development was proclaimed as an advantage to the Soviet system, something that could give them an edge in the Cold War.

Detroit received widespread acclaim for its leadership in the program, which attempted to turn a nine-square-mile section of the city (with 134,000 inhabitants) into a "Model City." To help finance the effort, Cavanagh pushed a new income tax through the state legislature and a "commuter tax" on city workers. He promised the mostly poor and black residents of the Model City area that the rich would pay for all of these benefits. He bought their votes with taxes they didn't have to pay.

It was classic American socialism.

More than $400 million was spent on the program – and that was back when quarters still had actual silver in them. The feds and Democratic city mayors were soon telling people where to live, what to build, and what businesses to open or close. In return, the people received cash, training, education, and health care.

But they didn't like being told what to do... or how to live. Not surprisingly, the Model Cities program was a disaster for Detroit. Within five years, it had helped trigger a complete breakdown of civil order and the city's population began to rapidly decline.

On July 23, 1967, police attempted to break up a notorious "blind pig" in the heart of the new Model City. Blind pigs were after-hours clubs that featured gambling and prostitution. They were part of the black culture of Detroit, with many having been in operation since the Prohibition period. The community tolerated these establishments – but the political leadership didn't want any blind pigs in the new Model City area.

On this particular night, at this particular club, the community was celebrating the return of two Vietnam War veterans. More than 80 people had packed into the club. The police decided to arrest everyone present, including the two war vets. This outraged the entire neighborhood, which began to riot. The scene turned into the worst race riot of the 1960s.

As my friend Doug Casey likes to say about the War on Poverty, "The poor lost." The violence killed more than 40 people and left more than 5,000 people homeless. One of the first stores to be looted was a black-owned pharmacy. The largest black-owned clothing store in the city was also burned to the ground. Cavanagh did nothing to stop the riots. (He claimed a large police presence would make matters worse.) Five days later, President Johnson sent in two divisions of paratroopers to put down the insurrection.

The situation destabilized the entire city. Most of the people who could afford to leave did. Over the next 18 months, 140,000 upper- and middle-class residents – almost all of them white – left the city.

And so, you might ask... after five years of centralized planning, higher taxes, and a fleeing population, what did the government decide to do with its grand experiment? You'll never guess...

Seeing it had accomplished nothing but failure... The government expanded the Model City program with 1974's Community Development Block Grant Program. Here again, politicians would decide which groups (and even individuals) would receive state funds for various "renewal" schemes. Later, big business was brought into the fold. In exchange for various concessions, the Big Three automakers "gave" $488 million to the city for use in still more redevelopment schemes in the mid-1990s.

What happened? Even with all of their power and all of the money, centralized planners couldn't succeed with any of their plans. Nearly all of the upper- and middle-class citizens left Detroit. The poor fled, too. The Model City area lost 63% of its population and 45% of its housing units from the inception of the program through 1990.

Even today, the crisis continues. At a recent auction of nearly 9,000 seized homes and lots, less than one-fifth of the available properties sold, even with bidding starting at $500. You literally can't give away most of the property in Model City areas today. The properties put up for sale represented an area the size of New York's Central Park. Total vacant land in Detroit now occupies an area the size of Boston. Detroit properties in foreclosure have more than tripled since 2007.

None of this is surprising. It's exactly what you'd expect to see given the implementation of a socialist scheme like a Model Cities' program. Quite simply, coercion doesn't work for economic development. You cannot tax yourself into prosperity.

It might buy votes... but sooner or later the voters will realize all that's been promised was a lie. Won't they?... Maybe not.

You see, the failure of the Model Cities program and of the War on Poverty wasn't surprising. What is surprising is that every single mayor of Detroit since 1961 has been a Democrat. And extremely liberal.