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Estimating Home Equity Impacts from Rapid, Targeted Residential Demolition in Detroit, MI: Application of a Spatially-Dynamic Data System for Decision Support

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Estimating Home Equity Impacts from Rapid, Targeted Residential Demolition in Detroit, MI: Application of a Spatially-Dynamic Data System for Decision Support Estimating Home Equity Impacts from Rapid, Targeted Residential Demolition in Detroit, MI: Application of a Spatially-Dynamic Data System for Decision Support A Report Produced by Dynamo Metrics, LLC1 July 2015 ABSTRACT In an effort to further the goals of the Motor City Mapping Initiative, investments were made to create a data architecture for a spatially-dynamic decision support system in Detroit, Michigan. The data system that now exists is capable of tracking the time series dynamics of every one of the more than 384,000 parcels in Detroit between January 1st, 2011 and March 31st, 2015 on a quarterly basis (seventeen quarterly time steps for each parcel). To provide a rapidly produced and useful example of the analytic capabilities of the spatially-dynamic data system, it was used to estimate the effect of the in progress, rapidly deployed Hardest Hit Fund (HHF) demolition investment concentrated in selected areas of Detroit between April 1st, 2014 (Q2 2014) and March 31st, 2015 (Q1 2015). This study utilizes causal modeling that incorporates spatially- dynamic econometric methods in the context of a spatio-temporal treatment effects analysis to estimate the impact of the HHF Blight Elimination Program implementation on single-family home values in Detroit. Using the year prior to HHF implementation (Q2 2013 – Q1 2014) as a control for the rapid and targeted HHF implementation (Q2 2014-Q1 2015), findings suggest that home equity increases of up to 13.8%2 exist for single-family homes that sold inside HHF demolition zones (HHF Zones) after the implementation of the HHF Blight Elimination Program. Further results suggest each demolition event within HHF Zones after policy implementation nets a 4.2% positive impact on the value of nearby homes, while single-family home counterparts outside the HHF Zones net a 2.1% positive impact on the value of nearby homes during the same time period from nearby demolition activity. Findings thus suggest that home equity protection hedges created by demolition activity are greater, and homes are more valuable overall, within HHF Zones after HHF implementation than elsewhere in the city. It can therefore reasonably be maintained that the HHF Blight Elimination Program is having a market-stabilizing effect on the neighborhoods it targets. 1 Report authors can be reached at [email protected] or www.dynamometrics.com. 2 The “up to” 13.8% suggests that more research is warranted to determine the portion of the 13.8% that is specifically caused by HHF demolition activity, and what portion, if any, can be attributed to the many other positive neighborhood activities, investments and associated effects that may have stemmed from targeted HHF investments. 1 Acknowledgements The team at Dynamo Metrics would like to thank Rock Ventures, LLC, and The Skillman Foundation for helping make this project possible and for their dedication to the increased sophistication of data systems in Detroit. Also, thanks to all partners of the Motor City Mapping initiative and those departments in the city of Detroit that provided data for this study for their commitment to a rich data environment in Detroit. Thanks to Data Driven Detroit and LOVELAND Technologies, LLC for project support and help integrating into the Detroit data movement. 2 Table of Contents Acknowledgements .................................................................................................... 2 Introduction ............................................................................................................... 4 Increasing the Sophistication of Detroit’s Data Ecosystem............................................................. 4 Constructing a Spatially-Dynamic Data System in Detroit .............................................................. 4 Identifying Useful Application of a Spatially-Dynamic Data System in Detroit ............................... 4 Estimating Home Equity Impacts from Rapid, Targeted Residential Demolition in Detroit, MI .................................................................................................................. 6 Empirical Research Approach .......................................................................................................... 6 Data ................................................................................................................................................. 6 Empirical Model ............................................................................................................................... 7 Empirical Findings ............................................................................................................................ 9 Interpretation of Key Empirical Findings ................................................................................... 11 Policy Implications .................................................................................................... 15 Study Limitations and Future Research ...................................................................... 16 References ................................................................................................................ 17 Appendices ............................................................................................................... 19 1. Cautionary Note on Summary Statistics .................................................................................... 20 2. Summary Statistics of Average Single-family Homes: Inside/Outside HHF Zones & Before/After HHF Implementation ..................................................................................................................... 21 3. Summary Stats of Average Single-family Homes: Housing Submarkets Based on Block-Group Level Median Income .................................................................................................................... 22 4. Summary Statistics of Average Single-family Homes: Median Income Housing Submarkets Inside/Outside HHF Zones ............................................................................................................. 23 5. Summary Statistics of Average Homes: Inside/Outside HHF & Before/After HHF in High Income Submarket ........................................................................................................................ 24 6. Summary Statistics of Average Homes: Inside/Outside HHF & Before/After HHF in Middle-High Income Submarket ........................................................................................................................ 25 7. Summary Statistics of Average Homes: Inside/Outside HHF & Before/After HHF in Middle-Low Income Submarket ........................................................................................................................ 26 8. Summary Statistics of Average Homes: Inside/Outside HHF & Before/After HHF in Low Income Submarket ..................................................................................................................................... 27 9. Map of Submarkets for this Analysis: 5-Year Census Estimates of Median Income at Block Group Level ................................................................................................................................... 28 10. Map of Demolition Concentrations Before HHF Implementation (Q2 2013-Q1 2014) .......... 29 11. Map of Demolition Concentrations After HHF Implementation (Q2 2014-Q1 2015) ............. 30 12. Map of Average Single-Family Sale Price Concentrations Before HHF (Q2 2013-Q1 2014) ... 31 13. Map of Average Single-Family Sale Price Concentrations After HHF (Q2 2014 – Q1 2015) ... 32 14. Map of Unoccupied Tax Foreclosable Residential Properties in 2015 Q1 .............................. 33 15. Map of Vacant Lot Concentrations in 2015 Q1 ....................................................................... 34 16. Map of Average Sales Price Change After HHF Blight Elimination Program Implementation 35 17. Chow Test Results - HHF Regimes Diagnostics ........................................................................ 36 3 Introduction Increasing the Sophistication of Detroit’s Data Ecosystem To further the goals of the Motor City Mapping initiative, The Skillman Foundation and Rock Ventures, LLC, sought to develop data analytics capabilities for Detroit. Dynamo Metrics, LLC (Dynamo), was hired for two tasks. First, Dynamo was to construct a spatially-dynamic and analytics ready data system from available public and proprietary information. Second, Dynamo was to produce an analytics product derived from this data system to show the usefulness of a sustained commitment to data infrastructure. From December 2014 through May 2015, Dynamo constructed the spatially-dynamic data system. During this time, it was decided that the Detroit policy community may benefit from an analytics product focused on the impact of the HHF Blight Elimination Program investments now underway. Dynamo explored both correlative and causal modeling approaches. In June 2015 Dynamo determined that it could construct a causal modeling approach, although the explanatory power of the causal model would be less robust than in normally-functioning real estate markets. Time constraints limited Dynamo’s ability to exhaustively test and stress the modeling process, as would be expected in an academic environment. Those limitations notwithstanding, this report’s results provide insight, performance measurement, and decision support to Detroit’s leadership, and show examples
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