Kent County Land Bank Is Not a Good Deal For Citizens

Recent report from the land bank promoting generous return on investment missing key information

A recent report from the Kent County Land Bank claims the agency's actions resulted in a $16.5 million economic impact in the community at a cost of $364,846.

That would be an astonishing return on investment of 4,400 percent.

If true, this would be great news for residents. Unfortunately, it is based on a simple analysis that in part is based on estimates and assumptions. That has not stopped the claim from receiving media attention.

Land bank officials arrived at their claim by tallying the following:

$2,996,783 in sales

$225,974 in real estate commissions

$367,331 in demolition and clean out contracts

$8,073,840 in estimated buyer renovations

$1,225,000 in savings to local government

$3,806,250 in "property value preservation"

= $16.5 million

Operating budget: $364,846

The problem? Every one of the things above happens in a normal real estate market at no cost to taxpayers. The private market generates sales, real estate commissions, demolition contracts, renovations, savings to local units (money that would go for government services if a property was left vacant) and property value preservation (the amount surrounding homes would be lowered if a home remains vacant).

The Grand Rapids Association of Realtors reported that 12,241 sales occurred in 2013 at an average price of $151,879. Using the land bank's math, the local realtors are generating $1.86 billion in sales alone at zero cost to taxpayers — a return on investment of infinity.

Also, the cost of the land bank is shown only by its operating budget. The land bank did not consider other costs to Kent County government and area school districts, such as the 50 percent of local property tax money that flows to the land bank for five years once it sells a property. The land bank also is in line to receive $2.5 million in federal money to fight blight in 2014 (the land bank says half of that will go to Habitat for Humanity). 

Furthermore, it is unclear how the land bank arrived at its estimate of "buyer renovations." That $8 million is listed as an estimate, but is unaccounted for. In addition, the $3.8 million in "property value preservation" that the land bank estimates does not consider the additional value that might have been created if the land bank had allowed private buyers to purchase and redevelop tax auction property. That is the opportunity cost (the value that would be created by the private sector if the land bank was not interfering). A more serious cost-benefit analysis would have considered such costs.

From the presentation, it appears that Kent County Land Bank officials think only they can keep buy, sell and upgrade properties. In reality, such positive activity is business-as-usual in the private real estate market. There is no particular reason why a government unit (using taxpayer dollars) would be better at figuring out the value of property than private citizens (spending their own money).

In Michigan, land banks are governmental entities that are able to cut ahead of private citizens to scoop up properties at the cost of taxes owed. They can play the role of speculator by reselling the properties. This has led to many problems in the state.

In Wayne County, the land bank entered a special deal where it spent $26 million for property and sold it to a private developer for $1 and the promise of thousands of jobs. The developer flipped it for $179,000 and the jobs never materialized.

In Genesee County, the land bank owns 15 percent of the property in Flint and is reselling homes at a favored rate for certain public employees. The Kent County Land Bank is using local governments to cut in front of private citizens wanting to buy property.

The Kent County Land Bank's impact can be better judged by the so-called need it is attempting to address. Without the land bank, tax auction properties in Kent County are typically purchased, which leads to associated sales, real estate commissions, property cleanup, renovations, additional tax revenue and improved property value. 

Despite the big announcement, the Kent County Land Bank has mostly shown that it can stop millions of dollars in private real estate development. 

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.