Construction and Real Estate

‘Missing middle’ concerns homebuilders

Buyers with moderate incomes are being priced out of the new-home market.

March 8, 2019
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The average size of new homes built in Michigan has decreased in each of the last three years. Courtesy iStockphoto

As the rising cost of single-family homes continues to price out middle-income buyers, West Michigan homebuilders are working to meet the demand for more affordable, quality homes.

According to data from the National Association of Home Builders, more developers nationwide are beginning to build for the “missing middle,” or moderate-income homebuyers, rather than building the larger, more affluent homes from years past.

NAHB data shows the average size of new houses fell for the third straight year in 2018. Median square footage of single-family houses decreased to 2,320 square feet last year after peaking at more than 2,500 square feet in 2015.

In West Michigan, major homebuilders like Sable Homes have been working on both issues. Sable Homes President John Bitely said the company is working to answer these national issues occurring in West Michigan.

“Residential developers, like us, want to help and sustain the communities they’re building in, but their hands are often tied to unreasonable municipal government requirements,” Bitely said. “After years of larger lot-size developments, local governments are struggling with how to handle the need for additional housing and the need for ‘missing middle’ homes in their respective communities. We hope local municipal governments understand the need to adjust their building requirements and zoning ordinances in order to help today’s homebuyer purchase their dream home.”

Bitely recommended local municipalities adjust building requirements and zoning ordinances, as the cost of conforming to such requirements translates to a higher home price for the homebuyer.

Citing data from NAHB, Bitely said as much as 27 percent of the cost of a new home could be attributed to municipal regulation, meaning the price for what would otherwise be a $200,000 home would go up by about $50,000.

“The consumer has to wake up. If they don’t want to pay more for houses, they have to speak up with their municipality and make it clear to the planning commission that they want new homes built, and they don’t want them on great big lots for people who can only afford McMansions,” Bitely said. “We could take 40 acres and put 20 houses on it. Now I have to use 80 acres. It’s dumb land use.”

Mike McGivney, vice president of sales and marketing for Allen Edwin Homes, said he would agree certain municipalities have requirements that raise the cost to build, but the big factors he has noticed are the cost of labor and the cost of material, which have risen throughout 2018 and further into 2019.

McGivney also didn’t think there was an inventory issue. While there are many homes on the market, the demand for housing at such a high price point has gone down.

“If a buyer’s sitting at $250,000 a year ago, now its $300,000, and they’re priced out of the market,” McGivney said.

Allen Edwin Homes launched the Integrity Collection in November 2018 to specifically address affordability for the “missing middle.” The series offers seven different floor plans that start from $150,000 in Grand Rapids and Kalamazoo, $160,000 in southeast Michigan, $170,000 in southwest Michigan and Indiana, and $190,000 in Lansing.

The homes plans offer three to five bedrooms with two to 2½ baths and total square footage between 1,459 and 2,192. Allen Edwin estimated monthly payments would start at just over $1,000.

“If we can make it so it’s simpler to build, we pass the cost savings onto the home,” McGivney said.

Allen Edwin also is helping first-time buyers educate themselves on what to expect from the current market.

“A lot of them are frustrated that their expectations are inflated,” he said. “They watch HGTV and think they’re getting a home at 3,000 square feet at a certain budget. Our job is to educate them. The biggest population of millennials is just getting into the prime of their buying power.”

McGivney said about 25 percent of Allen Edwin’s home sales are through the Integrity Collection, and the plan has been popular with younger and first-time buyers. As a message to the home-building industry at large, he warned: If builders don’t start meeting the demand for middle-income buyers, it could mean a repeat of the 2008-09 housing crash.

“We’ve been preaching now for the better part of nine months. There are buyers out there, they’re in debt and they’re on a budget,” McGivney said.

Bitely also said West Michigan could face more serious trouble several years down the road. While the regional economy came out strong from the recession compared to the rest of the country and still hovers at about a 3 percent unemployment rate, West Michigan workers still need a place to live.

“A lot of these problems only get worse nationally,” he said. “What I’ve experienced in my career, we lag anywhere from three to seven years behind everything. As big as the affordability crisis is nationally, it’s not as big here, but it will be.”

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