I have seen the future, and it is Detroit.

I recently visited the Motor City with a group of academics and consultants from around the country interested in new approaches to economic development. The opening of the federal trial on the city’s bankruptcy filing hung over all our meetings like the Sword of Damocles.

Nevertheless, the wide range of people working hard – and creatively – to save their city is inspiring. I mentioned this on Facebook and quickly received similar comments back from friends in a variety of fields:



Eric Schnurer

“Detroit is the most interesting laboratory in the world right now for urban experimentation. Given the state of things, anything's worth a try and lots of things are being tried.”

“I thought that as well; we are launching a [Medicare and Medicaid] demonstration in the Detroit area focused on improving integrated care for dual eligible ... Detroit is the perfect test ground in many ways.”

“A friend relocated to head Detroit's IT department and she's very high on the transformation in progress.”

Unfortunately, little of the official response involves investing in the existing city residents – and most of it implicitly or explicitly involves their removal. The new plans for the city’s revitalization include subsidizing businesses to move back into the city and paying suburbanites to do so as well. Homes in blighted neighborhoods are being foreclosed, condemned (or the water from the city-owned utility shut off) and land-banked, to be turned into either new developments, green spaces or water reservoirs.

Here’s an alternative.

Chris Aldridge is managing director of NFH Capital Partners I, the real estate development arm of National Faith Home Buyers, a Detroit non-profit that helps families afford home ownership. Aldridge has a plan to promote dozens of refinancings, in his words, “to exploit the price impact of Detroit’s frigid retail credit market on homes in good middle-income neighborhoods in Detroit.” By this he means that, thanks to the financial crisis, you can now get a nice three-bedroom brick home in a safe area, requiring only minor rehab, for less than $25,000. Where the house is still occupied but under tax- or mortgage-induced foreclosure, National Faith has created a mechanism to clear title and buy the house “marked to market.” The banks get back more than they usually do trying to sell the property in foreclosure, the home occupant gets equity and eventual outright ownership with lower monthly payments in the meanwhile, and the public receives both transaction fees and a new stream of pre-paid property taxes.

Chris Aldridge

The rental home pictured here had a $100,000 mortgage – but thanks to the financial crisis and Detroit’s deteriorating condition, a market value of only about $18,000. The owner walked away, and the house went into foreclosure. As Aldridge explains it, the cost to the bank of foreclosing and evicting the family would have been about $14,000, plus having to pay off $3,000 in delinquent property taxes. As soon as it was vacant, vandals would have stripped it of anything sellable – water heater, doors, windows, gutters – leaving an eyesore to degrade the neighborhood and requiring the bank to invest $20,000 to rehab it, all so as to sell it for $15,000.

National Faith offered the bank $15,000 to buy the house immediately. It then sold the house to the renter on a note with a seven-year term at $500 per month – $300 less than what the family had been paying in rent for the same house. The rent savings plus the eventual equity will leave the family better of by $61,000. That represents a tremendous increase in both disposable income and wealth for this family, while keeping the house occupied, all of which benefits not just the family, but also the neighborhood, the bank and the city treasury.

The latter needs the help, and not simply because the city has been profligate with public services. Most civic expenditures don’t disappear just because the wealthier residents do, leaving some of the poorest families to pay, implausibly, some of the highest property taxes in the country. When properties are land-banked – which consists of foreclosing for non-payment of those exorbitant property taxes – the government uses its powers to shut off all prior claims to the property, “municipalize” it, and then sell it back into private hands on more favorable terms. That favorable private resale could just as easily be made to poor current residents through non-profits like National Faith – or even by the government itself – as to wealthy new developers. As Aldridge says, “That's where a lot of central cities are really missing out in managing their inventories.”

That’s an interesting way to put it, because it underscores how we need to start thinking of governments: as business enterprises that can be profitable, but “owned” on some basis other than capital investment – namely, “citizenship.” That’s a form of “collectivism” that, unlike, say, the joint-stock corporation, greatly disturbs some people (mostly those who own joint-stock corporations). The question now facing the world at-large is whether “governments” and “states” continue to be defined, as historically, by their territories and physical assets, or by their citizens.