Housing permits for Michigan single-family homes increased by 40% in January, in comparison to permits pulled in the first month of last year. Courtesy Thinkstockphotos.com
The percentage of housing permits issued in the state of Michigan in 2017 is strong compared to the year before, but homebuilders still are concerned current strains on the construction industry could hinder future growth.
Data from the U.S. Census Bureau shows housing permits in Michigan for single-family home construction were up 10.3 percent, with 16,743 permits issued at the end of 2017 compared to 15,176 in 2016.
The numbers are more than double what the Home Builders Association of Michigan (HBAM) predicted. In January 2017, the HBAM annual forecast predicted growth at just under 5 percent.
This also was a serious jump from the third quarter of 2017. The Business Journal reported in November that single-family housing permits, according to the Census Bureau, were up 4.5 percent at the time.
“The stronger-than-anticipated year underscores the fact that there is considerable pent-up demand for new housing in Michigan,” HBAM CEO Bob Filka said.
The inventory to meet demand is stronger, however, in certain areas of the state than in others. In West Michigan, the numbers fluctuate. According to the Census Bureau, there were 1,797 housing permits for single-family units issued in the Grand Rapids/Wyoming area in 2017, compared to 1,644 in 2016.
In the Kalamazoo/Portage area, as well as Muskegon, the numbers went down this year. Kalamazoo/Portage saw 102 permits issued this year, compared to 111 the year before, and Muskegon, which had 16 issued in 2016, had 15 issued in 2017.
“If you looked toward Rockford and some of the other communities surrounding GR, you’d see numbers higher than 10 percent as far as growth,” Filka said. “My assumption would be the availability of lots. It’s not just a workforce issue.”
Filka said that, during the 2008 recession, new development activity came to a halt, which caused a void in new developments. Adding to the problem is the long wait time for new land developments to come on line, even after economic conditions improve.
“We’re seeing a dynamic where there’s lots of demand for homes that are larger, more expensive, better margins for developers in outlying areas,” he said. “You’re going to put your money where you have a higher return on investment.”
While there are short-term benefits, in terms of home values and equity rising for homeowners, Filka cautioned that congestion, if left unchecked, will price more homebuyers out of the market.
This dynamic already is taking place, according to a report released late in 2017 by HBAM, which the Business Journal highlighted. In 2016, 559 households in the Grand Rapids-Wyoming area were priced out of the middle-class market by a $1,000 increase in the price of existing homes. One hundred and fifty were priced out in the Kalamazoo-Portage area, 132 were priced out in Muskegon and 83 were priced out in Holland.
As more middle-income households struggle to afford housing in a market with higher premiums, the result could put more constraints on affordable housing efforts.
“All those problems in the industry are a ripple effect,” Filka said. “If affordability issues are affecting other types of housing, it will affect affordable housing.”
Filka suggested looking to other states as examples for how they allocate funds.
“In some states, they’re looking at their need for senior housing. They allow developers to use a TIF district to pay for that senior housing development,” he said.
A TIF (tax increment financing) district is a public financing method used to subsidize redevelopment, infrastructure and other community needs. The TIF reallocates funds from property taxes, and any increase in revenue from increased property taxes is put into the fund to be used by the municipality for any range of purposes allowed by the TIF.
Filka said the state of Michigan has used TIF districts to finance other areas of development but added it may be time to consider it also as a method for solving housing affordability.