Cost of housing far outpaces rise in wages

GRAR says first-time homebuyers especially are struggling in a hot market.
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According to HBA figures, the median new home price is about $287,000 in the Grand
Rapids/Kentwood area, and the income needed to be able to afford such a home is about
$67,000 per year. Photo by iStock

While workers in the Grand Rapids-Wyoming metro area have seen their wages grow by 5.2% over the past six years, the area’s average sale price for a single-family home has increased 64.5% during the same period.

According to the Greater Regional Alliance of Realtors, the average home sales price went from $152,274 in January 2015 to $248,170 this January.

According to GRAR, 99.6% of single-family homes sold above the list price in January 2021 compared to 96% in January 2015. The average number of days a single-family home was on the market in 2015 was 71, compared to 34 this year.

Julie Rietberg, GRAR executive director, said the problem of affordability comes from availability, particularly availability of homes affordable for people who make lower wages and are just entering the housing market. Primarily, builders are not building houses a first-time homebuyer would consider affordable, she said.

“If you look at how housing has increased in this area, it’s lightning speed compared to salary and wage increases,” Rietberg said. “What’s interesting is if you look at people coming here from other areas, they think it’s affordable. They sell their house elsewhere for $1 million and can buy a house here for half of that. The difficulty is in the first-time homebuyer range.”

Rietberg said the current market gives builders little motivation to build for that first-time buyer market. These conditions stem partly from the skyrocketing cost of lumber. Lumber prices have risen more than 180% since last spring, driving up new home prices.

Dawn Crandall, political affairs director for the Home Builders Association of Michigan, said the price of shingles has gone up as well, making roofing more expensive.

According to HBA figures, the median new home price is about $287,000 in the Grand Rapids/Kentwood area, and the income needed to be able to afford such a home is about $67,000 per year.

Additionally, Crandall said home building numbers are not where they should be across the state. In 2005, there were roughly 54,000 single-family homes built, in 2007 the number dropped to 15,000, and in 2009 it dropped to just under 7,000.

HBAM projects the number of homes that will be built in 2021 will jump past 16,000, which still will not meet the demand for new homes statewide, or even in Kent County, Crandall said.

“Kent County has done some assessment of what they’re going to need over the next several years, and it’s about what we would build statewide,” Crandall said.

Both Crandall and Rietberg agreed oversized lots also are a major factor in the cost increase of building a new home.

“If we look at all the elements of cost: land value, lot size, minimum frontage — lot size in several municipalities is 90 feet. Well, who says you can’t build a home on a 50-foot lot? Now I can build two houses on that land and recapture some of that expense as a builder,” Rietberg said.

Rietberg added these restrictive zoning practices fall on local municipalities. Zoning, outdated master plans and outdated land-use regulations can suppress housing supply, drive up housing costs, and widen racial and economic disparities, she said.

Crandall said what’s encouraging for her is there now is a coalition working on a bipartisan package of legislation to allow local municipalities more tools for development opportunities.

The Michigan Housing Coalition consists of over 40 members from a number of different organizations, including Housing Next in Ottawa County, Housing North in the Grand Traverse area, the HBA, the Grand Rapids Area Chamber of Commerce and the Michigan Municipal League.

“For the first time in all the years I’ve been engaged in coalitions, we have that cross section of businesses, nonprofits and developers,’ Crandall said. “You need the housing for employers to come here and bring those employees with them.”

Leveraging smart zoning reforms and easing building restrictions can unleash housing supply to help meet the needs of current and future residents, Rietberg said.

GRAR also identified some innovative zoning and land-use reforms that cities and other local governments are using to improve housing affordability and access to opportunity.

Build bigger and smaller

Many cities are reforming local land-use regulations to build more housing where it is needed most. This involves both building bigger — lifting height or density restrictions — and smaller — finding opportunities to build on smaller parcels of land.

In December 2018, Minneapolis became the first major U.S. city to eliminate single-family zoning in an effort to increase housing supply and density, reduce housing costs and create more racially and economically integrated neighborhoods, Rietberg said. Seattle also recently rezoned several single-family neighborhoods as “residential small lot” areas, which allows smaller, denser multifamily housing that preserves the neighborhood’s look and feel while providing more affordable options.

Cut the red tape

Outdated or inefficient requirements can drive up costs or kill projects entirely, Rietberg said. The cost of development goes directly back to the end user and drives up the price of each newly built home.

Boost affordability

Even when land is maximized and bureaucracy minimized, the private market still may not provide housing that is affordable to the low- and moderate-income families who need it most, Rietberg said. One tool to support long-term, deeper affordability is mandatory inclusionary zoning, which incentivizes developers to set aside a portion of the development for affordable housing at different income levels.

Mandatory inclusionary zoning tends to slow gentrification and create more affordable housing options, Rietberg said. Other local governments have implemented density bonuses, which incentivize the production of affordable housing in exchange for increases in allowable building heights.

“As local governments explore new ways of zoning and regulating land, it is important to remember that not all reforms deliver their intended or desired outcomes, and innovations that work in one context may not easily transfer to another,” Rietberg said. “Sharing data, experiences and outcomes among local governments will be essential to achieving smart zoning reforms that ease affordability pressures, expand housing options and improve access to opportunity for everyone.”

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