By Ryan Kilpatrick
Editor’s Note: the Home Builders Association of Michigan has been warning of a housing crisis in our state for nearly three years. We felt it important for readers to hear what a key leader of a new organization in west Michigan, HousingNext, is saying about it.

This past summer I wrote about the difference between Housing Choice and Housing Affordability. This is an important distinction to recognize in your local market economy and, in most communities, we’re still severely lacking in both choice and affordability. However, as we have worked to partner with local communities on reducing the regulatory barriers to more housing choice, we have heard some concerns from housing advocates that new construction is still too expensive and the additional choices in the market are not affordable enough to many buyers and renters. To this, our most common reply is ‘Yes, and...’

The cost of new construction is expensive.

For the most part, newly constructed homes, apartments and condominiums are more expensive than similarly sized and finished older housing products. This has been true for a very long time. If you’re familiar with the concept of asset depreciation -the assumption that a property will lose value over time as it ages -this should make quite a bit of sense.

However, the primary issues making housing unaffordable to roughly 40% of the population in West Michigan are:

1) There isn’t enough housing supply to satisfy demand in the regional market and this shortage of supply creates competition. Competition drives up prices. Prices rise most quickly in neighborhoods where there is greatest demand and relatively little supply. In recent years, we have seen the most competition and the most dramatic price increases in neighborhoods with access to very good schools OR in neighborhoods within walkable, amenity-rich areas of town. Where a neighborhood has both of these assets, prices have more than doubled since 2010 in some instances.

2) The cost of construction has increased by roughly 30% over the last decade. Meanwhile, average wages have increased by only 4% over the same period of time. This means the average wage buys significantly less in the housing market than it did 10 years ago. The impact of this is significant and important to the rest of this post.

Middle-Out Housing Strategies

Ten or fifteen years ago, a middle-class household earning $50,000 per year could afford to purchase a newly built starter home. Their monthly mortgage payments (principal, interest and taxes) would have easily been less than 30% of their gross income. A basic starter home would have sold for $150,000 to $225,000 prior to the great recession.

However, due to the cascading impacts of the recession -a significant loss of laborers, an increase in material prices and a relative scarcity of land with access to utilities -this price point no longer exists for the middle-class home buyer. A new construction home today is typically priced between $295,000 and $350,000, at the low end of the market.