How Michigan is Fixing its Low Inventory Issue

Rural Michigan towns are getting creative and using urban funding methods to fix their low inventory issues. Newaygo, a small town in west Michigan, is the site of a pilot program that is using public funding to address a lack of affordable housing for middle-income homeowners known as “the missing middle”.

Mid-priced homes in west Michigan have become increasingly scarce since the Great Recession in 2008. Consequently, prices and competition for existing homes have jumped considerably in just one year. However, this is just one piece of the low inventory puzzle. The other piece is the massive slow-down in residential construction across the state. The Home Building Association of Michigan is predicting 2021 to see just 16,000 home building permits – that’s about one-third of the building pace in 2005.

Even though home building permits have been slowly increasing since the recession, the homes that are being built aren’t affordable for the state’s middle class. These new construction homes, with median prices of $330,000, do little to help homebuyers in towns like Newaygo where the average home sale price is around $150,000.

“The lack of moderate-priced new housing stalls the move-up market,” reports Bridge Michigan, “keeping people in their lower-priced homes that should be first houses for lower wage earners.”

After nearly completing phase one of the River Hills Estates development in Newaygo, John Bitley, president of Sable Homes, presented an idea that would use Tax Increment Financing (TIF) to confront the area’s moderate-priced housing inventory issue.

Tax Increment Financing is a tool that uses public funds to stimulate economic development in targeted areas. This financial structure uses a set base value for tax collections with the understanding that the amount of taxes collected over time will increase. The money from the increased tax collection rolls into the TIF and is used for predetermined projects in the community.

Using TIF’s to support housing development is a new approach. The innovative idea makes sense for communities, like Newaygo, who want to appeal to new businesses and provide reasonably priced homes for the people who will fill those new jobs.

“Getting into housing is certainly not traditional (for us), but in this capacity, I think it made sense,” said Julie Burrell, business development manager in Newaygo for The Right Place, a regional economic development corporation. “It’s going to help our businesses. We can’t continue expanding businesses if they’re not going to have anywhere for their workforce to live.”

As Bitley prepared to launch the second phase of the River Hills Estates Development, he realized the cost to build roads, lay water lines, and supply the homes with power would push the home prices out of reach for local homebuyers. The reasonable prices achieved in phase one were only possible because Bitley bought the initial 31 lots through a deal with another developer.

The TIF pilot was launched in Newaygo County with help from the state’s land bank and The Right Place. Together they were able to fit the TIF financing structure to work for the second phase of Bitley’s development.

Bob Filka, executive director of the Home Builders Association of Michigan, believes lowering construction costs has a trickle-down effect, resulting in fewer housing shortages and a boost in the overall economy of the area. Applying TIF regulations to home construction is an innovative idea he hopes will catch on nationally.

The big ideas behind this small-scale project may help to replace the “missing middle” in west Michigan and throughout the country.