Michigan's Housing Market Struggles: Building the 8th Fewest Homes in the U.S.

Key Takeaways

• Michigan ranks 8th lowest in new housing units authorized per 1,000 existing homes.
• A combination of factors—rising construction costs, higher mortgage rates, and pandemic-induced supply chain disruptions—has contributed to the state's sluggish homebuilding pace.
• Despite rising demand for housing, Michigan's supply remains constrained, potentially exacerbating housing affordability issues.

Overview: Michigan's Low Housing Supply

In the post-pandemic housing market, Michigan is struggling to keep pace with the rest of the country in terms of new home construction. According to recent data, Michigan ranks 8th lowest among U.S. states in the number of housing units authorized per 1,000 existing homes in 2023. The state's rate of new housing permits remains stagnant compared to 2021, which is in stark contrast to the national trend where housing demand continues to climb.

Rising Costs and Slowed Construction

One of the primary factors behind Michigan’s lagging homebuilding efforts is the rising cost of construction. Since the onset of the COVID-19 pandemic, the construction industry has been hit with escalating material prices and labor shortages. The National Association of Home Builders’ Housing Market Index, a key indicator of builder confidence, dropped to 43 in June 2024, well below the 50-point threshold indicating poor market conditions. Builders cite higher mortgage rates and construction costs as significant deterrents to new developments.

Michigan's Housing Supply: A Persistent Problem

While national trends show a slowdown in the housing market due to the Federal Reserve’s interest rate hikes, Michigan faces a deeper, more structural challenge: a persistent lack of housing supply. The state authorized just 1.2 new housing units per 1,000 existing homes in 2023—less than half the national average of 2.5. This lack of new housing has caused home prices to soar, further straining the budgets of homebuyers and renters alike.

Construction Delays and Labor Shortages
The construction industry continues to experience long delays in building projects, particularly in single-family homes. These delays have been exacerbated by labor shortages, as the industry still struggles to replace workers lost during the pandemic. As a result, the time it takes from housing authorization to completion has increased, with more than half of all new builds experiencing delays of over two months—a marked difference from pre-pandemic timelines.

From the viewpoint of Michigan’s construction owners, the challenges posed by the state’s underwhelming housing supply are multifaceted. They have faced the dual pressures of higher material costs and a shortage of skilled labor, making it difficult to meet the demand for new homes. Construction owners highlight that while demand for housing remains strong, navigating through these obstacles is impacting both project timelines and profitability. For many, the unpredictability of supply chains and rising interest rates have made it harder to invest confidently in new developments, leaving them caught between the pressing need for more homes and the constraints of the current market. This perspective reflects broader industry concerns about the future of housing affordability and the role of construction in addressing the nationwide housing crisis.