Staying safe inside for the past 15 months has done a number on most people. Anxious for a change of scenery, many Michiganders have been perusing the housing market these past few months.
Even if it’s just the casual late-night Zillow rabbit hole, you’ve probably noticed that the current market is on the fritz. Buyers are paying significantly over the asking price, forgoing inspections, and paying in cash, creating an unprecedented housing market for buyers and sellers.
A bonkers market
Marc Norman researches affordable housing and community development. He’s an associate professor at the University of Michigan’s Taubman College of Architecture and Urban Planning. He told Stateside that the pandemic isn’t the only thing driving up prices for houses right now. There are a number of other factors, dating back more than a decade.
“We actually still have a hangover from the 2008 financial crisis, [in] which collapsing demand and collapsing prices really put a gap in the amount of housing construction that was happening,” Norman said. “As the economy came back, that housing construction didn’t come back in the same way.”
This stagnant supply coupled with a boom in pandemic recovery demand has highlighted and exacerbated this underlying issue, Norman pointed out. Historically low-interest rates have allowed people to enter the market like never before.
While some prospective buyers are new to the game, economic inequality is still causing issues for those looking to buying wealth via homeownership.
The demand for single-family homes went up 35 percent during the pandemic, but the demand for second homes went up more than 100 percent, according to an analysis by Redfin. In tourism-heavy areas like Traverse City, Norman said, these vacation home buyers, who have the capital to put in higher offers, are pushing out first-time buyers who live there year-round.
However, cities like Detroit are experiencing acute scarcity due to a lack of move-in ready homes. The Detroit Land Bank owns a large number of parcels of land, but the often blighted homes need a lot of work. It’s created a hot housing market for all the wrong reasons, according to Norman.
“Sometimes the cost of the rehabilitation is higher than the value of the house, and that presents a problem,” Norman said. “When you actually funnel down to what is actually on the market that one could move into without having to renovate, and that one could actually get financing for, that’s also constraining the market.”
Hot markets without homes
You might be familiar with the real estate adage “location, location, location.” But when it comes to building houses, there’s a different set of factors at play. The five “Ls”: lending, land, lumber, labor, and laws. Norman, who focuses on affordable housing, said restrictive zoning laws are one big factor in the current affordability crunch.
“We make it pretty hard to build the kinds of housing that people can afford, and we do that in all sorts of ways. There are cities in Michigan that have minimum lot sizes and minimum house sizes.” Norman said “There are some communities in Michigan that say you can’t build a house less than 12,000 square feet. So if lumber, if construction costs are $100 a square foot, no matter what you do, a house is never going to be less than $120,000.”
When it comes to building new housing, developers are often going to go the path of least resistance, said Norman. And that means building big subdivisions of single-family houses on former farmland. This, coupled with housing laws like those mentioned above make it difficult to build up cities like Detroit rather than sprawl out from them.
“In addition, some of the things we say want, but then when the rubber hits the road, we say we don’t want like affordable housing,” Norman said. “Building in our cities is very hard.”
A moral issue
Norman is also a member of the Federal Reserve Board’s Community Advisory Council. This market is particularly frightening when you consider that rental rates aren’t going down either, he explained. It’s a double whammy for people who cannot afford to buy a house right now and are currently stuck in a high-cost rental market as well.
“The way we build wealth, for better or worse, in this country is through homeownership,” he said. “As more and more people are priced out of this market, there are at people at a particular point in their life where they might buy a house and start building that wealth that won’t be able to.”
There’s not a cut-and-dry solution to this situation. Building more homes and raising interest rates would remedy some of the issues but could lead to problems of their own.
“My fear with the supply meeting demand is we’re going to see a lot more sprawl because builders see that there’s demand for people getting homes and the easiest, fastest place to build these homes is in our woodlands and our farmlands,” Norman said. “We’re going to see a lot more sprawling subdivisions which have implications for traffic and have implications for climate change.”
This article was written by Stateside production assistant Olive Scott