Q&A: Michigan builders want state’s help to build affordable homes

Home construction once filled Michigan with new neighborhoods at a wide range of price points. Since the Great Recession, that’s changed: At least 40 percent fewer homes are being built across the state as the building industry confronts ongoing challenges.

Bob Filka is CEO of the Home Builders Association of Michigan. (Courtesy photo)

That comes as prices for existing homes escalate in Michigan. Overall, prices are up 6 percent across the state so far in 2020. Yet many areas are seeing double-digit price growth while there’s a shortage in inventory. 

The price movement in many communities across the state “normally would mean a huge amount of demand for new construction,” said Bob Filka, CEO of the Home Builders Association of Michigan. 

Instead, he said, the slower pace of new building and shifts in the industry are adding to the housing pressure for many buyers in the state who face a lack of supply and affordability. 

COVID-19 is compounding that, as the changing industry has to deal with increasing product costs that add time and financial pressures to new construction. Even as new home starts were up 23 percent nationally in July, Michigan’s building pace is less than half of its historic average from before the Great Recession.

As a result, Filka said, the building group has asked state lawmakers and Gov. Gretchen Whitmer to consider 15 requests that the association says will help increase the state’s new housing stock. 

“We know the governor and leaders in the Legislature are facing a number of COVID-related challenges right now, but addressing housing sector issues will be vitally important to the state’s recovery, growth and local tax base in the years ahead,” according to an Aug. 27 letter from the builders’ association

The group wants the state to:

  • Investigate density restrictions and local policies to determine if communities are discouraging construction of entry-level housing.
  • Identify communities that support cost-cutting measures for builders, like expedited reviews, fee reductions or waivers and by-right zoning that doesn’t require additional approval time.
  • Include housing incentives in economic development plans to attract or retain businesses. 
  • Create a tax credit, loan or grant programs to encourage home repairs to keep people in their homes and maintain current housing stock.

Fewer builders, contractors, workers, parcels, operators and capital in the market mean that “very few mid- or lower-priced homes are being built,” Filka says. One consequence is there is a disproportionate rate of homeownership by race and income across our state, “making home appreciation/equity and greater wealth generation out of reach for an increasing number of Michiganders,” he said.

 

Filka recently spoke with Bridge Michigan Business Editor Paula Gardner about issues facing Michigan’s residential construction industry. Here are excerpts:

What do you think could lead to more median-income housing?

Old-fashioned economic development tools, like tax-increment financing or other expedited review types of things. If you’re Amazon and want to build a place in Michigan, people are falling over themselves to offer incentives or other tools to make that investment happen. The same kind of approach for most communities in Michigan right now [could work] to build housing in that price range of $200,000. Otherwise it’s just not going to happen in this market.

Housing was always a competitive advantage in Michigan and we’re losing that today.

There’s not a one-size-fits-all solution in any part of the state. But I do think our communities need more tools to try to bring that investment to the community.

What’s your assessment of the housing industry today?

Michigan once had about 25,000 to 26,000 homes built a year on a statewide basis. If you look at our numbers now and where they’ve been since the housing crash more than a decade ago, we’re not even close to that. We will probably build about 16,000 homes this year. 

If you compare not just numbers but what kind of homes are being built — speaking in general — all of those new homes are at the very high end of the market. The median price [of new-construction homes] in Michigan in early 2019 was about $330,000. In markets like Traverse City, that median is closer to $500,000. 

We see tons of renovation work around the state.  What’s driving that is people getting sticker shock and they say they can’t afford the median price in Michigan. Then they say they’re going to buy a $200,000 fixer-upper and put $100,000 or more into it and get more yard and more square footage. We see that happening up and down the spectrum of housing, which then just pushes people looking for a starter home or more affordable home into lower-level housing. It just trickles down, putting more pressure on renters and everything else.

That also explains why, coming out of the COVID-19 shutdown, the demand has been soaring. Our guys are busier now than they were before COVID-19. We’re continuing to see that kind of demand. The problem is there are fewer builders, fewer contractors, subcontractors, workers. Workforce issues are still there.

What’s happening with materials cost?

We’re seeing spikes. Lumber alone, in the last month-and-a-half or so, has pushed the price [to construct a single home] up $16,000 in less than two months. On top of that, a major producer of PVC resin, which is the stuff that goes into plumbing materials, decks, handrails, got taken out by the hurricane in Louisiana. We’re seeing prices for new construction spiraling upward. That puts more demand on the existing housing stock. 

We’re kind of in a perfect storm in our housing industry. Looking ahead, a lot of members in the short term are in great shape. One could argue that everyone in our industry right now can work as much as they want, because demand is that high for renovations, contracting and new builds, so why are we interested in policy efforts to spur more moderately priced housing?

Members of my organization recognize their customers are going to run out eventually. For a decade or more, we haven’t built adequate supplies of what I would characterize as that missing middle housing: anything starter level, anything that an average Michigan household can afford. Essentially nobody’s building those homes for that average Michigander anymore.

I was surprised when I looked at the Pulte website recently. That company was always known for some affordable new construction. Very few of their properties today start at under $300,000.

It all comes back to the math and having a return on investment that you can justify. Pulte is a publicly-held company, so it’s responsible to shareholders. Some of our privately-held independent builders that do high volume will tell you that they can’t make money under $300,000. And that price point is going up every day. 

There’s a lot going into that equation, like local government issues, the time to get a development going. 

What’s the outlook on developed lots for near-term home building?

The availability of lots, particularly for small builders, is a huge challenge. 

What other changes are you seeing?

In general, our industry today is much, much smaller in terms of people working in the industry, the amount of capital that is accessible to our industry, and it’s becoming harder and harder to find lots to build upon. 

The industry is consolidating. Going to see more and more consolidation. Opportunities are going to become more challenging. 

Michigan, unlike other parts of the country, always had a large number of small builders who’d do five to 20 homes a year. Other states were dominated by the publicly traded homebuilders. That's starting to become more of the case in Michigan. I’m not sure that’s necessarily good for home buyers. It limits the availability

What does today’s home high appreciation rate in most markets tell you about homebuilding’s future?

It would normally mean huge demand for new construction. When there’s a nice, 15-year-old house that is on the market and gets a dozen offers on the first day it’s listed and then sells for $20,000 more than what they were asking — in an “old-world analysis,”  our numbers would be going through the roof. When they can’t find what they want in an existing house, they’re going to go build new. 

That trend means good things for remodeling. We’re pushing $9 billion in [statewide] remodeling activity right now, versus $4.5 billion in new home construction activity. I think that remodeling is going to continue to spike. 

Your letter seeks some solutions from the state. What else concerns you, policy-wise?

Things like immigration, things like trade. We have a 20 percent tariff on lumber right now. Similarly, you wouldn’t believe all of the products or at least the tools and components that go into the houses and how they’re produced in China, and we’ve had the trade war there.

Long term, we’re in serious trouble for the cost of housing and just the cost of housing repair. 

Also, immigration. Thirty percent of our workforce used to be immigrants. It’s close to 10 percent now. 

What response did you get to the letter?

We’ve gotten some acknowledgements. We’re really setting the stage for next year. It’s going to take time. We’re doing briefings and discussions with the administration. It’s been received relatively positively, but from a priority standpoint, how quickly is it going to rise to the top of the heap of big issues affecting the state? Yet it’s going to snowball if we don’t start addressing it.

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Comments

Harold Leese
Thu, 09/17/2020 - 9:37pm

Please sign petition for safe and affordable public bus service in Detroit and everywhere. All funds must be in writing before you vote on this in 2022. http://savethefueltax.org

K Smith
Fri, 09/18/2020 - 9:07am

I would love to see less homes built by destroying wildlife areas and more homes built on land already 'developed'. There are so many eyesores in the metro Detroit area that should be demolished and new, affordable, updated houses built. Let's think about the impact we're having on the environment, here. It's not just about us. And who really needs a 4,000+ sq ft home?!

Hallinen
Fri, 09/18/2020 - 10:05am

I’d love to see the state improve the building code to include mandatory solar roofs, better insulation and lower carbon materials. The west is burning, the Atlantic is churning and global warming is dooming us to worse. Housing is a major carbon producer, we have to do better. The pay off down the road, especially for low income housing, is huge.

middle of the mit
Fri, 09/18/2020 - 4:33pm

I am having a hard time bringing this article in line with the two others that came out today. In the other two articles, we hear that there is a house buying boom up here, but it seems as though it is for homes in low to mid hundred thousand dollar range. And that is the median house price for MI?

NO where in the article did I see mention of anything approaching or under $100,000. What is the definition of affordable? And why can homebuilders only make money on houses that are above $300,000? Couldn't you build a few $50,000 homes and sell them but make up for the costs on the amount of homes you build? Also, why are home builders now wanting to be Amazon, and getting tax breaks for doing their job where it is needed?

And what is driving the costs? I have relatives that want building codes vanquished so that first time homeowners can "build a house their way, to what they can afford." Does that sound like something you want in your neighborhood? It isn't low cost renters driving costs. As the man says at the end, they use immigrant labor to keep labor costs down, so it isn't labor or poor people buying houses they can't afford.

What could be driving prices so high that those who serve those who live there can not afford to live there?

Hmmm.

J Hendricks
Fri, 09/18/2020 - 10:08pm

Modest housing CAN be constructed. We are simply not doing it. Right after World War II huge housing projects blossomed - but consider this: most were simple 2-bedroom, 1 bath affairs with an unfinished attic and basement, small rooms, modest appliances, and all on a 50 foot lot. But this was a starter home! And massive parts of the post war population grew up in homes like these.
There is no reason we can’t construct these again -without government subsidies- perhaps on lots that allow an easy addition when modest family incomes allow them to add a room and maybe a second bathroom.
We will never construct low income housing with high value amenities. You can get your McMansion when you can afford your third or fourth home.

carole
Sat, 09/19/2020 - 3:53pm

I grew up in the type of home you are talking about. I was one of 6 children (1 bathroom only). When I was married, we lived in the same type of house with 4 children and added a dormer with 2 bedrooms. If the kitchen is at the rear of the home it can be enlarged into the rear yard. A second bath can be added to the basement. A 3rd bedroom can be added next to the kitchen that leads into the first floor bathroom. It is all about planning ahead for add on possibilities so that the plumbing makes sense where it is originally placed. Most builders don't even try to think about add ons when the house is designed. Another possibility is to start using something other than wood for framing. Some thought and design would also come into play to do that too.

Frank Kalinski
Sun, 09/20/2020 - 6:47am

Buyer's needs have changed. For people to buy a home and stay in it for 30 or more years is not realistic anymore. In today's economy many jobs are "contract" or short term. Families need to be able to move across town or across the country at the drop of a hat. Technology and markets changes so quickly too that even good paying jobs are insecure.

Good, affordable, single family rental homes are what's missing. I was a landlord with two rentals (1,000 square foot ranches in Livonia) and the hoops we had to jump thru for the City, property and income tax treatment and the unavailability of tax tax subsidies for energy upgrades made owning rentals difficult at best.

The underlying demand for housing has changed while suppliers and government are still stuck in the post-war, early Baby Boom era