‘Wake-up call’ issued for Michigan home building

Christine Ferretti, and Jennifer Chambers
The Detroit News

Michigan is seeing a near-crisis in affordable home building, as difficulty with lending, regulations and a dwindling skilled-trade workforce have struggled to get Michigan out of a construction recession it’s been in for nearly a decade.

It threatens to get worse.

The state’s largest construction association on Tuesday plans to release a report it hopes will serve as a “wake-up call” for communities, economic developers and policymakers on the state’s housing challenges. The Home Builders Association of Michigan says bank lending for housing developments is limited while regulatory and building costs are rising. And there’s a shortage of workers with the skills needed to do the work.

At the same time, demand is growing for larger homes that provide higher investment returns. In turn, fewer homes are being built at starter or mid-level costs, which is pricing residents out of the market for new housing, the association says.

“It’s a multifaceted challenge and problem for the state,” said Bob Filka, CEO of the Lansing-based builders association. “We wanted to put a framework out there that said, ‘Hey, we live and breathe this stuff. We are telling you these issues collectively are going to cause a major problem for this state if we don’t do something about them.’ ”

At its height in 2005, Michigan’s residential building industry contributed more than $3.3 billion in local and state taxes, generated nearly $10 billion in income and helped generate and sustain more than 153,000 jobs, the report notes. Today, the industry is less than half that size even though demand for housing and renovation services continue to grow, it says. Each new home built equates to 3.4 full-time jobs over a 12-month period and 1.2 permanent jobs, the association claims.

The number of new single-family residential homes built in Michigan has fallen to historically low levels. During the past 50 years, Michigan has built an average of 28,000 homes annually. The association suggests the state should build between 25,000 and 30,000 new single-family homes each year to keep up with normal life cycles of aged housing, changing demographics and population shifts, a level that hasn’t been reached in nearly a decade.

From a low point of about 6,000 homes built in 2009, the association estimates 16,000 new single-family homes will be constructed in 2017. Absent changes, the association expects production more communities will experience housing shortages at all price points.

Elusive entry points

It took first-time homebuyer Donnie Thompson three months to find his 1,300-square-foot ranch in Southfield, but the process felt like it took much longer. Thompson said it dragged out when the 28-year-old had to make three or four offers before one was accepted.

“Every house we looked at already had offers submitted, even if it was listed on the market that same day,” Thompson said. “Our Realtor said that there were more than 20 offers on a few of the homes that we looked at.”

Thompson, a contract specialist at Beaumont Health Systems, never saw a new construction home in his price range of $150,000 to $180,000 and would have liked to have the option of considering one.

“A well-maintained — even a small starter home — that had decent schools and an OK neighborhood couldn’t be touched for much less than $200,000, which to me is not an entry-level home,” Thompson said.

To kick-start building activity at all price points, the builders association highlights what it says are three cornerstones to improving conditions. Among them, spotlighting local government policies to identify impediments, ensuring clear enforcement of code and land development laws and a focused effort on training a skilled trades workforce.

The association recommends that the state housing authority partner with economic development organizations to review how local municipalities can manage land development, housing and renovation approval processes. It also urges collaboration among local business and government leaders to address the affordable housing shortage.

The group also suggests the Legislature pass housing impact statement measures requiring communities to assess the impact of any new housing ordinances before they are adopted.

Keith Baker, city manager of Coldwater, said about 1,000 new jobs are coming this fall to his town where a pork processor is opening a state-of-the-art 600,000-square-foot processing facility.

But Coldwater, in southern Michigan near the Indiana border, completely lacks affordable housing for the influx of new workers.

“As much as is the case around the state, we see higher-end homes being built here, and we have a much older housing stock. But we don’t have that $150,000-$200,000 single-family home size,” he said.

Developers tell Baker it’s nearly impossible to build a home for less than $200,000 without a subsidy. The city also has a rental shortage.

To address that, Clemens Food Group, the pork processor, is partially financing construction of an apartment complex in Coldwater to provide housing for its employees, Baker said.

“I think it’s becoming a crisis for the state. I think it will negativity impact our ability to attract new employers. Where are those people going to live now? We are solving the employment issue. Now we need to solve the housing issue so people can live and work,” he said.

Bradley Jernigan, an associate broker for Century 21 Town and Country in northern Oakland County, confirmed the high demand for new construction there, saying buyers want to come into a home, unpack their bags and be done.

He agreed most new construction in Metro Detroit is made up of step-up homes or homes in which people plan to live after retirement.

“For a starter home, you are looking at an established neighborhood and prices keep rising. That makes it difficult for someone to get into one. It could take months of searching for an entry-level home simply because of low inventory.”

A key goal of the association’s report, Filka said, is changing the discussions locally over housing investment. On average, about 25 percent of the cost of typical new home construction can be attributed to studies, site reviews, delays, permits, fees and other code requirements, according to the National Association of Home Builders.

Communities can distinguish themselves, the report says, by streamlining these processes and removing barriers, he said.

“We’re hoping this report spurs more communities to review their processes and be a leader in terms of setting public policies and procedures that attract housing investment,” Filka said.

The report is the first of its kind for the association, Filka said, and the product of a series of meetings this year with nearly two dozen state lawmakers, affiliated home builder associations and some of its 4,800 members.

Workforce drain

Of the report’s 13 recommendations, about half deal with avenues to boost the skilled trades workforce.

From 2000 to 2009, the state lost 43 percent of its workforce in residential construction. By some estimates, 60,000 workers left the industry. Many workers found other employment, moved out of the state or retired. Also, new curriculum requirements in schools and the extended recession shuttered many construction training programs.

“The skilled trades are in a panic situation to train in new kids to take over,” said Jim Clarke, president of Robertson Homes, whose Bloomfield Hills-based firm has housing projects in about 10 communities in southeastern Michigan.

“We struggle like all of the builders in finding enough of the people to be on site every day. Most parents say, ‘I don’t think I want my kid to be a plumber,’ but they are missing the mark. That’s a great career and a very entrepreneurial one, too.”

The builders association recommends a greater K-12 focus on skilled trade career pathways, public awareness campaigns and legislative changes to allow earlier exposure to construction work by students younger than age 18.

State Sen. Ken Horn R- Frankenmuth, said he’s working on a long-term solution to get more skilled trade workers into the job market in Michigan.

Horn has a bill that requires high school counselors to spend professional development time learning how to talk to high school kids about skilled trades careers.

“Every parent wants their child to have a better life and go to college. These other great careers are out there. They can go into carpentry or be an electrician. Some of these young people are making $100,000 with OT with no debt,” Horn said. “The possibilities are there. These are incomes you can raise a family on.”

The builders association suggests there’s already been some positive changes.

According to a statewide poll of 600 active voters commissioned by the association, some 70 percent of state residents would support the idea of their child pursuing a career pin a construction-related or other skilled trade field.

The poll, conducted by Marketing Resource Group, also showed 82.4 percent of voters would support a special millage or other public funding to create and maintain vocational programs to attract and train more students in skilled trades.

As of March, there were 4,448 job openings statewide in a couple dozen key residential construction trades, based on state data.

The figures do not include several thousand positions many companies are no longer trying to fill, the report said.

“It is essential that officials hear how drastically our industry has changed,” Filka said. “It’s a different world. We’re sounding an early warning system here. The normal environment has to change.”