Why Michigan’s Housing Crisis Continues Despite MSHDA’s Best Efforts

Michigan’s housing crisis is still here. It’s not going anywhere anytime soon and while the Michigan State Housing Development Authority (MSDHA) is doing more than what it’s done in years past, its reach has limits.

That’s the uncomfortable reality in Michigan and across the country, as the number of home buyers continues to outnumber available homes, despite some slight progress in the market.

That slight progress is at risk of being erased, however, as the Federal Reserve considers interest rate cuts.

If mortgage rates come down after an expected rate cut in September, more people could move off the fence of whether they want to buy or sell their house. And it may not be the only rate cut in 2024, either, said Brad Ward of the Michigan Realtors.

“According to our national economists, usually when you see that first-rate cut, that means that there are going to be a series to follow,” Ward said.

Ward said the housing market closely follows the law of supply and demand. As supply rises, demand decreases, dropping the price. When supply is short, prices go up.

If the interest rate lenders are able to give potential home buyers go down, sellers are more open to moving. That creates some supply from the existing housing market, Ward said. It may also increase those interested in buying.

Dozens of mayors at the Democratic National Convention in Chicago talked about the lack of housing affordability this past week, according to a marketplace.org report.

Detroit Mayor Mike Duggan brought up in last week’s MIRS Monday podcast that the city had built $1 billion in new affordable housing over the last five years, but still needed to build another $1 billion over the next five.

The Legislature, Gov. Gretchen Whitmer and Michigan State Housing Development Authority (MSHDA) have been adding money to the housing market through the budget and programs, but there is only so much that can be done. Ward noted you can’t build a house overnight.

To complicate matters, red tape from local zoning and a growing not-in-my-back-yard (NIMBY) mentality has slowed new production.

Over at MSHDA, its staff has been furiously working on financing 42 developments in the state, and six or seven have already been initially closed. In a slow year, officials said they do 12 deals. In the busy years about 30 to 35.

“I feel like folks have sort of risen to the occasion, because the amount of deals and loan committees that we have now to get these things moving is well beyond what I’ve seen in the last couple decades. Folks are really working hard,” said Chief Financial Officer Jeff Sykes.

Ward said MSHDA also has a couple of bills in the Legislature that would help get more people help buying single-family homes.

HB 5032 would raise the cap of low-interest loans passed through MSHDA. SB 293 would change the rate so that 55 percent of the funds within the Michigan Housing and Community Development Program would not have to be spent on low-income housing.

The cutting of interest rates would also affect MSHDA and its customers directly, according to Sykes.

As the mortgage rates go down, people who have borrowed from the Authority could qualify for refinancing on single-family homes. While it keeps the supply and demand neutral, he said it does help those people cover other expenses like groceries and car payments.

When rates go down and supply dries up, prices are driven up. That’s when MSHDA sees more people come to them for help.

One of the areas is helping developers bridge the gap between the cost of developing a lower-rent apartment complex and the amount of return they can expect. This type of program has its own limitations, he said

“The Authority only has a finite amount of gap filler, if you will, on an annual basis and so, as these deals come in, we get as many deals as we can get done with the gap filler that we have,” Sykes said.

It’s also not a quick process.

The pipeline consists of the proposal, going before the MSHDA board, initial closing, construction and final closing. The process takes between a year to a year-and-a-half, depending on the project, Sykes said.

“If there are challenges or difficulties, a development might take longer than that. Some can get done a bit quicker,” Sykes said.

He said the funding usually comes and goes in cycles and when the politicians talk about affordable housing, the amount MSHDA sees in its coffers from the state and federal governments ends up increasing, causing the number of housing units built to go up. Then the funding slacks off, causing the roller coaster to continue.

He said one of the biggest challenges in the down-funding years is doing deals for supportive housing, which includes people who typically use Section 8 vouchers, or housing that requires larger needs. Sykes said those require the most gap funding to create.

Article courtesy MIRS News for SBAM’s Lansing Watchdog newsletter

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