Economy
Detroit's Ambitious Plan to Jump-Start Its Housing Market
Home loans haven’t covered the cost of buying and renovating a run-down house, so the city thought up something new.
Detroit has a lot of cheap housing, but much of it desperately needs renovations. Residents have avoided buying houses in the city, looking instead to rent or move to the more expensive suburbs. That’s partly because lending policies make it hard to get money to buy an old house and fix it up.
Banks peg the amount of a home loan to the appraised value of a house. When the house is in good shape, that’s all you need. But if the house has a low market value because the market itself has collapsed, or it requires extensive and costly repairs, the would-be buyer has to scramble to find renovation money elsewhere. That might mean racking up credit card debt, or delaying the work for months until some money can be found.