There's admittedly a certain irony in tearing down houses with funds marked to keep people in houses.

A steady rise in housing prices nationwide has made analysts and investors hopeful about the future of the U.S. housing market overall. But in Michigan, one of the states most battered by the financial downturn, officials are still grappling with the grim remains of years of unemployment, population loss, and plunging property values.

Those remains are not figurative. They can be seen in the form of abandoned houses — tens of thousands of them — in neighborhoods around the state. Detroit alone has more than 30,000 such buildings.

That's why the Michigan State Housing Development Authority has been seeking permission to use federal funds aimed at keeping people in their homes to instead tear down derelict structures where no one will ever live again, and which often attract drug dealers, prostitutes, or arsonists. 

Yesterday, the feds finally agreed. Treasury officials released $100 million in money from the Troubled Asset Recovery Program, or TARP, to pay for a pilot demolition program in five Michigan cities: Detroit, Flint, Grand Rapids, Pontiac, and Saginaw.

The money comes from TARP's $7.6 billion Hardest Hit Fund, which was created in 2010 "to develop locally tailored foreclosure prevention solutions in areas that have been hard hit by home price declines and high unemployment." The fund covers 18 states and was designed to prevent foreclosures and keep unemployed or underemployed people in their homes, with measures such as helping with mortgage payments and getting underwater homeowners into more affordable mortgages by paying down principal.

What Hardest Hit was not designed to do was fund demolition projects. But Michigan's leaders argued that if their state was ever to pull out of the decline precipitated by the housing and financial crisis, demolition was the sensible place to start.

U.S. Representative Daniel Kildee, a Democrat from Flint, argued his state’s case in a March letter to Treasury Secretary Jack Lew [PDF], whose department administers the Hardest Hit fund. He cited research showing that in Flint, where 12 percent of the housing stock sits empty, that sale prices for occupied homes go down by 2.27 percent for each abandoned structure nearby. Kildee was the co-founder of the Center for Community Progress, a national organization that advises cities around the nation on how to reverse blight, and he also co-founded Michigan’s Genesee County Land Bank, which buys up and develops vacant and foreclosed properties in the area that includes Flint.

Kildee's letter notes that only 25.8 percent of the Hardest Hit funds had been disbursed as of February 2013, and that it was time to let Michigan use the money to address the most pressing need it is facing. The move, he wrote, was true to the intent of the Emergency Economic Stabilization Act of 2008, or EESA, of which the Hardest Hit Fund is a component:

Congress’ intent in passing EESA [the Emergency Economic was to protect home values, keep homeowners in their homes and shore up the nation’s housing finance system. Too narrow an interpretation of Treasury’s powers under EESA undermines Congressional intent. Treasury should approve demolition programs which prevent avoidable foreclosures, to do otherwise, misses the intent of EESA.

The MSHDA proposal caps the amount it will spend on any given demolition at $25,000, which means at least 4,000 homes will be torn down around the state. If costs are kept lower, many more could be razed.

There is a certain irony in tearing down houses with funds marked to keep people in houses. But Treasury's move in releasing the TARP money for demolition acknowledges that in some states, the road back to a stable housing market still has a long way to go, and individual states may need radically different solutions to get there.

Ohio is another state covered by Hardest Hit that has struggled to find money to tear down its vacant, blighted housing. Perhaps it, and other states, will be following Michigan’s path.

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