How much new residential development in northern Michigan is enough? City of Traverse City commissioners pondered that question two weeks ago, when Planning Director Shawn Winter shared that more than 600 housing units were currently in development within city limits, not including single-family homes. It’s also a question that housing experts and construction trades professionals in Michigan have been asking over the past year and a half, as the state has cycled through a relative boom in residential building. How much of that development is happening in northern Michigan, and how much of a dent is it making in the area’s oft-discussed housing shortage? The Ticker investigates.

According to data from the Federal Reserve Bank of St. Louis, permits were issued in Michigan for 16,511 single-family homes last year. Only one other year since 2007 has seen a higher number of single-family permits (2017, when the total was 16,690) but numbers are still way down from where they were before the Great Recession. In 2004, for instance, there were 44,450 permits issued in Michigan for the construction of single-family homes. By 2009, Michigan was down to 6,344 single-family permits, and housing production in the state has never fully rebounded.

The result of those down years is a massive statewide backlog in housing units. Bob Filka, CEO of the Home Builders Association of Michigan, recently told MLive that the state’s construction industry should be building “somewhere around 27,000 homes annually” to keep pace with demand. Even with multi-family housing units factored in, though, Michigan only built about 21,700 new housing units in 2021, per the United States Census Bureau.

According to Lauren Tucker, who serves as the executive officer of the Home Builders Association of the Grand Traverse Area (HBAGTA), those numbers help shed some light on why northern Michigan has such a significant housing shortage. State and nationwide backlogs in housing construction, plus skyrocketing demand for local real estate, plus a construction trades labor gap, equals an unbalanced market.

“Housing North did a study back in 2019 on the need for housing in our region, and the study showed that, through the year 2025, we’re roughly 15,000 housing units short,” Tucker says. In Grand Traverse County alone, that study indicated a need for 5,715 new units by 2025, including 4,085 rentals and 1,630 owner units. In other words, between 2020 and 2025, Grand Traverse County needed to add more than 950 new housing units to its stock each year to keep pace with demand.

The bad news? Grand Traverse County only saw 553 new residential building permits issued in 2021, per Census Bureau data. That number encompasses both single-family homes and multi-family developments.

Not every local county is pacing so far behind Housing North’s 2019 housing need estimates. In Leelanau County, for instance, Census data shows that 186 residential building permits were issued last year. To reach the 668 new units Housing North predicted Leelanau would need by 2025, the county only needs to add about 111 new units to its housing stock each year.

But Tucker also cautions that the past few years have thrown several curveballs into the equation – factors that could mean greater levels of need than Housing North anticipated back in 2019.

“After the pandemic, people figured out that they could live where they wanted and still be able to work,” Tucker notes. “So, we're having a huge influx of folks that are coming from downstate, or from Chicago, or even Texas and other areas of the country that want to live here. And that’s increasing demand.”

There’s also the short-term rental factor, which Tucker tells The Ticker has “muddied the waters” around housing need to such a degree that HBAGTA isn’t even sure whether northern Michigan is moving forward or backward in the race to meet long-term housing needs.

“There were three houses that sold on my street last year, and each of them is now a weekly rental,” Tucker says. “We’re talking five-bedroom, three-bathroom houses that were once family homes, and now they’re vacation rentals that are vacant most of the time. And then you see people who may have had income properties that were long-term rentals, but they’re now saying, ‘Well, why would I do a long-term rental when I can do a weekly rental and get my mortgage payment covered four times over in a month?’”

“Local governments need to start paying attention to this and regulating it,” Tucker adds, regarding short-term rentals. “It should be a percentage point, as in, ‘This is the percentage of housing [in our township] that can be short-term rentals.’ Or else it’s going to be hard to control. I live in Blair Township, and there are no regulations here at all.”

Even where northern Michigan is adding units to the local housing stock, Tucker says those units often aren’t hitting the specific affordability zones that Housing North specified in its 2019 market needs analysis. For instance, of the 1,630 owner units that Housing North said would be needed in Grand Traverse County by 2025, 84 percent of them (1,370 homes) were specified for home value ranges below $250,000. In 2022, because of local demand, rising interest rates on mortgage loans, and supply chain issues, Tucker says houses in that price range are a “dream” that largely “doesn’t exist anymore” – at least not in Traverse City. Some would-be buyers are even backing out of deals because the housing projects they started last year now cost dramatically more thanks to rising mortgage rates and huge spikes in materials costs.

“I was talking to one of our builders who is building a neighborhood just south of town, and he said he had two pre-sold homes where the buyers backed out,” Tucker says. “Those are people that had put down a $10,000 deposit, and they were backing out because they just didn’t think they could swing [the higher prices]. To walk away from a deposit like that, that’s a big decision.”

In the immediate future, Tucker predicts that northern Michigan’s affordability issues will drive more growth to Traverse City’s bedroom communities. “Workforce housing in Traverse City is kind of an oxymoron at this point,” she says. “And as a result, you’re seeing a huge surge in neighborhoods being built south of town. Kingsley, for instance, used to be this totally separate little town; now, it’s turning into the next Williamsburg.”

Longer term, though, Tucker thinks Traverse City and northern Michigan need real systemic change to make a dent in the local housing shortage. More short-term rental regulations at the local government level – and more developers willing to deed-restrict their properties as long-term rentals – would help. So would a push to get more kids and teenagers interested in the construction trades. The latter priority, Tucker notes, is the primary reason she took the executive officer job at HBAGTA, which she stepped into earlier this year.

“We work really hard to create that [construction trades labor] pipeline, and to make it attractive for students to want to stay here,” Tucker says, citing everything from scholarships to mentorship opportunities. “Because we need that labor pool here. You're seeing all of these larger construction companies coming into the area and bringing their crews. And that jacks up prices even more, because now we have to pay to house them and to feed them. That all gets passed on to the buyer or the renter.”