Created Equal: The pros and cons of buying a home on a land contract in Detroit

Predatory land contracts targeted low-income Detroiters following the 2008 financial crisis, says a new report. Josh Akers, the report’s co-author, joins Stephen Henderson to discuss.

A new research paper says that rather than helping poor people buy houses, land contracts — individual purchase agreements between sellers and buyers — too often result in housing catastrophes.  

The research paper, “Judged by Their Deeds: Outcomes for Properties Acquired by Contract Sellers Following the Foreclosure Crisis in Detroit,found in the years between 2008 and 2015, bulk investors — companies that purchase large bundles of homes at once — are generally associated with higher odds of near-term failure.  

In a city that has struggled to maintain and build homeownership, land contracts have become a tool that thwarts both efforts for many people. 

Asymmetrical information and expected failure 

Land contracts are a flexible and malleable tool for would-be homebuyers who might otherwise not be able to get a home loan. That can, and does, lead to successful land contracts that work for all parties involved. But that flexibility can also be abused. 

Bulk investors who are taking advantage of land contract agreements have a predatory business model that relies on asymmetrical information, says Joshua Akers, the report’s co-author. 

The investors know about a property’s tax and utility obligations as well as the financial position of the buyer. The buyer knows they need, or want a house, but often doesn’t understand the full terms of the contract. 

Akers joined Created Equal on Wednesday to discuss the pros and the cons of land contracts in the city.

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Joshua Akers is the research manager at the Mid-America Regional Council and the co-author of the report “Judged by Their Deeds: Outcomes for Properties Acquired by Contract Sellers Following the Foreclosure Crisis in Detroit” published in the journal Housing Policy Debate. He says another housing issue for low-income Detroiters is safety. 

“There is a lot of affordable housing in the city, but there isn’t a lot of habitable affordable housing in the city,” he said.

Listen to Created Equal with host Stephen Henderson weekdays from 9-10 a.m. ET on 101.9 WDET and streaming on-demand.

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