Michigan’s largest city, the cradle of the automobile industry in the United States, enjoyed its heyday in the early part of the 20th century, when Ford, General Motors, and Chrysler concentrated most of their production there. After the Second World War, the city began its decline.
Detroit, with a population of 1.85 million in the 1950s, now has only 673,000. The real estate crisis and the crisis in the automotive sector from 2008 onwards dealt the final blow, and the city had to declare bankruptcy in 2013, with more than 18 billion dollars (15.53 billion euros) in debt.
Signs of revitalization
The Democrat Mike Duggan, Detroit’s first white mayor since 1974, was elected to put the city back on its feet. In his job, several Detroit-born billionaires helped him. Thanks to their investments, the city center is regaining its color. Dan Gilbert has spent over $2 billion since 2013 to buy about 100 buildings in Downtown, 70% of that neighborhood.
The Ilitch family, the owner of Little Caesar’s pizzerias chain, also spent $2.1 billion on a massive sports complex (the Little Caesars Arena) that houses hockey (the Red Wings) and basketball (the Pistons) franchises.
Another positive signal, Ford confirmed in August its intention to invest $740 million in restoring one of the city’s most emblematic sites, the Michigan Central Station railway station, to house its teams dedicated to the car of the future. In recent years, several major groups – including Amazon, Google, Microsoft, and Ikea – have also decided to locate in Detroit.
Strong net profitability
The recovery is underway, but it promises to be long and arduous. There are still about 80,000 abandoned houses in Detroit: a third of the city is fallow, which corresponds to the surface of Paris. Already 14,000 have been demolished since 2014, and the town hall plans to destroy as many each year.
Despite a 400% increase between 2014 and 2018, the average price per square meter does not exceed $682 (‘588) in Detroit, when it peaks at $4,417 (‘3,808) in Miami.
These are highly attractive figures, but they must be considered with caution. Rent taxation in the United States is low: most rental charges can be deducted, and landlords who rent benefit from an allowance of $6,000 per year. However, finding a solvent tenant is not always easy given the high vacancy rate (23%) and the poverty of the inhabitants.
Besides, the rented housing can be degraded by its tenant, thus undermining the profitability of the investment. And the cheapest homes are generally located in neighborhoods where the reputation of schools is not so bright, a critical factor in property appreciation for Americans.