*This information was taken in part from GRAR, our regional real estate board.
We often field the question, “Why is there such a shortage of inventory in West Michigan, and how long will this continue to be the case?”
There are a number of factors that have contributed to state of the current housing market in West Michigan. Some are easily explained while other factors are more difficult to exactly pinpoint since it requires a more in-depth socioeconomic study.
The simple answer is the imbalance between supply and demand, the result of strong economic growth in West Michigan since recovering from the 2008 recession. How we got to this point, however, is multi-faceted.
- New Home Construction – During the recession, builders were constructing few, if any, new homes. Spec homes were not an option and custom-built homes were a thing of the past since it was nearly impossible to compete with de-escalating prices on existing homes. Many builders went out of business and skilled labor left the industry. Despite the increase in demand for new construction following the recession, a shortage of both skilled labor and available residential lots curtailed
the recovery. Fewer homes are being built per household than at almost any time in the past 60 years, according to the Federal Reserve Bank. As it relates to pricing and affordability, the shortage of building sites and the burdensome regulations in many communities has resulted in builders using what labor and sites they have to build more expensive
homes since they are faced with profit-margin decisions.
- Conversion of Owner-Occupied to Rental Properties – Also during the recession, many homeowners were faced with losing their homes to foreclosure or selling for less than they owed (short sales). Banks and secondary mortgage markets were faced with what to do with homes that were being repossessed at record rates. Although many of these homes were offered for sale on the open market, sales were at an all-time low and many sat on the market for months, even years. Large-scale investors grasped this opportunity to purchase packaged home portfolios, thereby converting what were previously single-family, owner-occupied properties, to rentals. These investors are not necessarily convinced that we have yet reached the peak for purposes of selling, leaving many of these homes unavailable yet today for conversion back to owner-occupied homes.
- The Vicious Cycle – The lack of confidence instilled by the recession caused home buyers and sellers to be cautious as we made our way out of the recession. In the early days following the economic recovery, low inventory was existent in nearly all of the price points. Because of this, homeowners who needed to sell their existing home in order to move up were concerned about whether or not they would be able to find a home once their home was sold. This was especially inherent in the so-called first-time home buyer price point. Exacerbated by fear, many chose not to list their home, which impacted potential home sales in all other price points as we move up the property ladder. Much of the growth of our population is in that first-time home buyer price point, so the lack of inventory at that level continues to be the most problematic.
- Quality of Life in West Michigan – Those of us who live in West Michigan understand the distinction of having been named in a plethora of ‘top’ lists, including being among the best metro areas to raise a family, best places to retire, safest places to live, and the lists go on. This hasn’t gone unnoticed in a world where this message is easily broadcast. With the generosity of many philanthropic gifts, the above-average volunteerism of our citizens, and the work of many organizations, not the least of which is the Right Place, we have not only seen the return of many people back to West Michigan, but we have become a destination. The Medical Mile is one prime example of the type of industry that has attracted talent from all over the world.
The bottom line? Even if the population in West Michigan had remained static over the past 10 years, the housing supply would not have kept pace. Add in the growth of the population in our communities and we can quickly see how we find ourselves in the midst of a housing shortage.
This article primarily addresses the shortage of inventory. There are a host of issues and topics that stem from this, not the least of which is affordability. Housing affordability – for both renters and owners – has become the #1 priority on the agendas of many municipalities, chambers, and businesses, and GRAR continues to work with these organizations with hopes of developing a multi-faceted approach to addressing housing needs for all.