Bankrupt: detroit
Photo: ThunderKiss Photography
The bankruptcy filing comes as a blow to the city, which has seen its housing market faced with high foreclosure and vacancy rates. In December 2012, Detroit was ranked the property market with highest number of empty homes in the US by 24/7 Wall St (based on data from Trulia), with a vacancy rate of 12.3 per cent.
"For every one new or resale home listing on Trulia, nearly another three are in some phase of the foreclosure process," said the report, which analysed data up to October 2012.
In February this year, data from the National Association of Realtors ranked the Michigan city as the most affordable place for existing single-family homes thanks to falling prices, while Case-Shiller’s house price index recorded values as being 37 per cent below the market peak.
The population has dropped too by a quarter, from 2 million in the 1950s to around 713,000. Citizens now wait 58 minutes for the police to respond to calls, according to the Guardian, while the unemployment rate has almost trebled since 2000. 40 per cent of stree lights do not work and only a third of the city’s ambulances are in service.
The city is now home to approximately 78,000 abandoned buildings and vandals reportedly plunder properties as soon as they go empty for pipes and fixtures, leaving almost one in five units without complete plumbing.
Earlier this year, a house without plumbing and heating caught the world’s attention by going on sale for just $1. House prices rose in July 2012 by 12.2 per cent compared to 2011, while sales surged 11.2 per cent thanks to eager bargain-hunting investors - a promising sign of a rebound to match the rest of the USA’s recovery.
Since then, pending home sales across the country have climbed to the highest level since late 2006, while prices expected to rise more than 10 per cent this year.
For Detroit, though, the wider recovery has not taken place. The stimulus to buy in the city has waned, reports Bloomberg; rental demand dominates in Downtown and Midtown, despite record low mortgage rates and affordable prices.
The conditions are ripe for buy-to-let investment but the city’s overall debts have failed to clear, prompting the state of Michigan to appoint lawyer Kevyn Orr as Emergency Manager of the city.
This week, Orr’s job culminated in the historic Chapter 9 bankruptcy request.
Michigan governor Richard Snyder wrote in a letter posted alongside the filing was “the only reasonable alternative that is available” to solve the financial emergency.
“This decision comes in the wake of 60 years of decline in the city, a period in which reality was often ignored. I know that many will see this as a low point in the city's history. If so, I think it will also be the foundation of the city's future,” he said.
"The citizens of Detroit need and deserve a clear road out of the cycle of ever-decreasing services.”
Mayor Dave Bing has promised that public services will continue to run and that public worker wages will still be paid.
It will take 30 to 90 days to decide whether Detroit is eligible for Chapter 9 bankruptcy protection
The city is not the first to take such measures, though: the Californian cities of Stockton, Mammoth Lakes and San Bernardino all filed for bankruptcy in 2012, while Harrisburg, Pennsylvania filed in 2011 but was denied.
Some have alternative theories behind the action. Ed McNeil, chief negotiator for a Union coalition, labelled the bankruptcy a political move against the unions:
“I've said all along that this is a power grab,” McNeil told Reuters. “This is not about fixing the city's finances. It's about the governor and his own agenda to take over the City of Detroit.”
Others have more optimistic views. General Motors, the only major American car manufacturer to be headquartered in the once-booming automobile hub, declared it was “proud to call Detroit home” and said it believed could “mark a clean start for the city”.
Is this the bottom of the market? Is the only way up - a long, difficult up - for property investors?
For now, Motor City stands stationary waiting to see what the verdict on its bankruptcy will be.
The headlights are on - but the engine has stopped running.