Michigan homebuilding peaks in 14 years, but rising costs, a labor shortage and an unpredictable supply chain hampering the industry

More single-family homes are being built in Michigan than at any time in the past 14 years, but rising labor and material costs combined with a shortage of workers and a chain of unpredictable supply frustrates developers and buyers alike as the pandemic creates a perfect storm of crisis proportions.

According to the Home Builders Association of Michigan, the number of single-family residential permits in 2021 far exceeds any previous year from 2007. As of September, the last month for which data is available, 12,915 single-family residential permits had been issued in statewide. year. That’s 40% more than at the same time in 2020 and 20% more than in 2019, according to the US Census Bureau.

Rhonda Gilbert, 65, and her husband are building a house in West Bloomfield, but months later her builder is still waiting for materials and workers to finish the job.

“We started building in January, but we were supposed to start building in November 2020,” she said. “Our builders asked me if we wouldn’t mind waiting a few more months for lumber prices to drop, because at that time they were at their peak. “

Aside from escalating material costs, Gilbert said the biggest challenge was the availability of skilled workers and building materials.

“Everyone is so busy right now in terms of trades,” she said. “It’s like keeping cats. There is still a series of things that are not being done. I’m still waiting for the kitchen cabinets.

MarkCavitt / The Oakland Press,

Homes under construction at the M / I Homes Oak Ridge development in Lyon Township, Michigan on Friday, June 4, 2021. Homes start at $ 512,000.

Bob Filka, president of the Home Builders Association of Michigan, said the increase in construction of new single-family homes indicates sustained demand from buyers and a sustained ability to build at a time when the housing stock remains very low and the demand from buyers remains very high.

He added that the latest permit numbers are still well below pre-recession totals, with homes under construction costing more to build and selling for a higher price. The average value of a new housing permit is more than 13% higher than it was in September 2019.

“For over a decade we have known a construction environment where the vast majority of new homes and renovations underway are at the high end of the market. As a builder you really can’t make a lot of money below $ 325,000 unless you get higher density, which is often a challenge for local governments, ”said Filka.

Mark Cavitt / The Oakland Press,

A house under construction in Lyon Township, Michigan.

In Oakland County, the average selling price of an existing single-family home is $ 392,000 from $ 355,000 in September 2020, a 10% increase, according to Realcomp. Until September 2021, 1,545 single-family residence permits had been issued, an increase of 20% compared to the same period in 2020, when 1,281 permits had been issued.

This year, approximately 42% of new residential construction in Oakland County is concentrated in Novi, Rochester Hills, Lyon Township, Troy and Orion Township.

According to data from the Home Builders Association of Southeast Michigan, Novi is leading the way with 167 single-family residence permits issued through September, including 43 in September alone.

Rising costs for permits, labor and materials have created significant challenges for first-time homebuyers and others looking for more affordable housing.

Kathy Coon, an estate agent with Rochester Hills-based Real Living Great Lakes Real Estate, said the Oakland County and Southeast Michigan market is more stable now than it has been over the last few years. summer, as more homes are for sale, but with electronic prices that remain higher than in past years.

“New homes come on the market at a much higher price than the market for existing homes, which is limiting for some,” she said. “The cost of new homes goes up as builders’ costs go up. “

In September, more than $ 70.2 billion was spent by developers nationwide on the construction of private residential buildings, which include single-family homes, according to the US Census Bureau. This is 20% more than in September 2020 and 39% more than in September 2019. This data includes the cost of labor and materials, architectural and engineering work, overheads, interest and taxes paid during construction and contractor’s profits.

Mark Cavitt / The Oakland Press,

Homes under construction in the M / I Homes Oak Ridge development in Lyon Township, Michigan. Homes start at $ 512,000. (Mark Cavitt / The Oakland Press)

For Michigan home builders, material costs and a lack of workers aren’t the only problem. Another challenge is the availability of materials and predicting when the products will arrive at the construction site.

“I just spoke to one of our members who builds 10 to 15 houses a year,” Filka said. “He’s booked until 2023, so you’d think he’s very busy, but he hasn’t finished a project yet this year because he’s waiting on a door, he’s waiting for appliances, he’s waiting for ‘other things. The products you could previously get to your construction site in days are now months.

Filka said some of those clients have been waiting a long time to move in as this builder tries to complete construction amid severe material delays.

As costs rise, developers stop building low-cost homes and focus on those with higher prices that can be sold for greater profits.

The average price of a newly built home in Southeast Michigan is $ 400,000, while the average selling price of an existing home is around $ 273,000, up from $ 249,000 in September 2020, according to Realcomp.

Charles Boulard, director of community development for Novi, said that as new homes are built, city officials will need to ensure that city, county and state roads can handle the increase in traffic. traffic.

Michael Stoskopf, president of the Home Builders Association of Southeast Michigan, said the increase in building permits is linked to the drop in inventory of existing homes for sale.

“But the level at which we find ourselves is limited by increases in material costs due to the supply chain problems that continue as we come out of the pandemic combined with the limited base of commercial contractors which has been a persistent problem since. the Great Recession, ”he said.

Mark Cavitt / The Oakland Press,

Homes under construction at the M / I Homes Oak Ridge development in Lyon Township, Michigan on Friday, June 4, 2021. Homes start at $ 512,000.

And more and more Michigan builders and developers are building homes without buyers, known as speculative or specific homes that are first built and then sold, allowing builders more flexibility over materials and labor costs. work while not having to deal with customers disappointed with construction delays and escalating fees.

David Steuer, owner of Farmington Hills-based Steuer and Associates, said his company has built custom or custom homes, which are homes built to a buyer’s specifications but have turned to builds speculative.

“It was a good business plan, but the length of delays and equipment shortages means we have to be flexible and change,” he said. “If you build a speculative house, you will avoid all of these buyer disappointments. The real estate market is strong enough that you as a builder don’t take so much risk when building a speculative home.

Steuer added that if there is no shortage of buyers, there is a shortage of manpower.

“If you look at the profit margins of publicly traded home builders, they’re not going up,” he said. “In fact, in some cases it has decreased. It is a common misconception for a buyer to think that the builder makes a lot of money per home. In the end, it really isn’t.

Mark Cavitt / The Oakland Press,

Homes under construction in the M / I Homes Oak Ridge development in Lyon Township, Michigan. Homes start at $ 512,000. (Mark Cavitt / The Oakland Press)

Michigan Industry Professionals Predict Single-Family Home Construction at Full Capacity Due to Limited Labor and Subcontractors, Increased Land, Construction and Regulatory Costs , and global supply chain issues with builders often waiting months for certain materials needed to complete a home construction.

In order to build a healthy and normal housing market, most economists say Michigan is about 5,000 to 10,000 homes per year below its historical annual average.

“Over the past 14 years, we have under-built new homes,” Filka said. “Even though our numbers are higher this year, we are still a long way from where we need to be. “