Lorraine Pitkin just bought some hard-to-find Michigan real estate: a newly constructed entry-level home, also known as a starter home.
Pitkin closed in late March on her $179,000 two-bedroom, 1,350-square-feet house in a subdivision in the Flint suburb of Burton.
The home is one of 69 so-called detached condos and traditional condos in the Mallard Ponds development. The homes are fielding strong interest from empty nesters and first-time buyers with their prices starting at $154,900, plus $100 monthly association dues for lawn care and snow removal.
The development is a rarity this spring because few Michigan home builders bother to construct entry-level houses, which are generally priced around $225,000 and below and have slim profit margins.
"Nobody else is building these," said Pitkin, who downsized from a four-bedroom house in Flushing because her children are grown.
Builders in and around southeast Michigan say it is now hard to make a profit on entry-level homes because of higher construction materials costs, a shortage in construction labor, local zoning and regulation issues and the cost of land in desirable areas.
It is also taking builders longer to finish construction on homes, largely because of overstretched subcontractors.
These dynamics have compelled many builders to focus on houses with bigger profit margins, often those priced $400,000 and above.
"In general nobody is building starter homes now," said Bob Filka, CEO of the Home Builders Association of Michigan. "I would argue that, in most markets, you can't build at those lower price points and make money."
Permits at historic lows
Overall home-building activity for all price points across Michigan remains well below historical levels, due, in part, to a slower-growing population.
Last year there were 6,271 permits issued for single-family houses across Livingston, Macomb, Monroe, Oakland, St. Clair, Washtenaw and Wayne counties, according to a preliminary count by the Southeast Michigan Council of Governments (SEMCOG). That was down from 16,471 permits in 2000.
The average value of a new single-family home permit is now about $270,000, which comes out to a $368,000 to $375,000 sales price when factoring in lot costs and other variables, according to Michael Stoskopf, CEO of the Home Builders Association of Southeastern Michigan.
The scarcity of new entry-level homes has led to tougher competition for existing, midpriced homes on the market. Real estate agents say these properties also are now in increasingly short supply, partly because many baby boomers are reluctant to sell the family house.
“Things just get scooped up very, very fast," said Jeanette Schneider, vice president at RE/MAX of Southeastern Michigan.
This dynamic is good news for homeowners who want to sell. But it makes house-hunting frustrating for would-be buyers.
The number of for-sale home listings across metro Detroit was down 31% this February from a year earlier, according to the latest report from the Realcomp multiple-listing service.
Finding ways to keep prices low
The small number of starter homes in developments that do get built tend to involve unique circumstances that help a builder keep the prices low.
For instance, the developer of Mallard Ponds, Shelby Township-based VIP Homes, got a bulk rate on the lots when buying them from the City of Burton after a previous developer gave up the partially built development in the last downturn.
VIP Homes' owner Vito Castellana said the good land deal enabled him to build out the development and price the new homes very attractively. The interest from prospective buyers so far has been strong, he said.
"My phone has been off the hook," he said. "I can't put them up quick enough."
In the Detroit suburbs, many of the entry-level homes getting built tend to be detached condos or town houses. The higher density of those building products helps keep prices low, builders said.
Jeff Craft, 27, of Flint sets up a barrier along the future site of the Parkdale Townes in Ferndale on Wednesday, April 5, 2018. (Photo: Kathleen Galligan, Detroit Free Press)
One Ferndale development with 72 town houses, called Parkdale Townes, will soon take shape on the site of the former Taft School at 427 Allen Road off 8 Mile.
The builder, Bloomfield Hills-based Robertson Brothers Homes, anticipates attracting entry-level buyers to the homes, which will be 1,200 square feet to 1,500 square feet. An initial batch of homes could be ready for their occupants late this year, said Robertson Brothers President Jim Clarke.
"We're trying to keep it in the low $200,000s on the smaller town houses, higher $200,000s on the larger town houses," he said.
Rendering of a Ferndale development of 72 townhouses, called Parkdale Townes, that will soon take shape on the site of the former Taft School. (Photo: Robertson Brothers Homes)
Robertson Brothers bought the land from Ferndale Public Schools, razed the old school at its own expense, and will get up to $2.8 million in tax-incremental financing reimbursement via the town houses' future property tax payments over the next 11 or so years.
The tax-incremental financing incentive "enabled us to get an attractive price point for people to move to Ferndale," said Tim Loughrin, the builder's manager of land acquisition.
Parkdale Townes was originally proposed with 109 town houses, but Robertson Brothers scaled back the project after nearby residents expressed concerns. Clarke said the density reduction added about $5,000 to $10,000 to the cost of each town house, although he emphasized he is nevertheless happy and excited for the development.
"It is very hard to deliver a single-family home for much less than $300,000, unless you are in a very far outlying area and you get good density," Clarke said.
Robertson Brothers also is preparing to build 28 houses in Ferndale in another new development, called Wilson Park Village. Those are to start in the low $300,000s.
Macomb-based builder MJC Companies is behind several new entry-level home developments, including Cypress Garden in Taylor and Fox Creek of Brownstown South in Brownstown Township.
The single-family houses start at $212,900 in Cypress Garden and $199,900 at Fox Creek.
"We're starting to get people to come to build now mostly because they realize there is really nothing else out there" to buy, said Barbara Gates, MJC's director for sales and marketing.
Gates said many builders are having trouble getting subcontractors to their work sites, adding to the time it takes to construct a house, which, in turn, adds more cost to a project.
These subcontractors are often small, family-owned businesses and the younger generation is showing less interest in taking over as the older generation ages. Additionally, many skilled trades workers left Michigan after the recession or more recently ventured for work in parts of the country following natural disasters, she said.
"The bottom line is there's just not enough labor out there," Gates said. "Our building time went from six months to a year," Gates said.
No give in existing home market
The lack of new entry-level homes has led to even more pressure in the existing home market.
For the past couple years, many would-be buyers have bemoaned the relative shortage of desirable, affordable suburban Detroit houses. So far this year, agents see little improvement in that situation.
Realtor Jason Matt of Keller Williams in Plymouth said he is encouraging buyers to act fast and make an offer on a property that they know they like, before it gets snapped up.
"If you need to sleep on it, you’re not going to sleep in it," Matt said.
Schneider of RE/MAX said one reason for the slim inventory of listings is that some baby boomers have yet to sell their family house to downsize or move to a retirement community.
"Typically, past generations when they got to a certain age, they moved out of the family home," she said. "Boomers aren't really doing that en masse. They like where they live, it still suits their lifestyle, so they’re staying put."
Some of the stay-put behavior could be a result of the lack of smaller, inexpensive homes in the region for retirees to downsize to.
Pitkin, the buyer of the new suburban Flint house, said she looked at nearly a dozen existing houses before she heard of the new Mallard Ponds development.
Mallard Ponds Condominiums subdivision in Burton is seen on Tuesday, April 3, 2018. (Photo: Ryan Garza, Detroit Free Press)
"The houses I was looking at in my price range were terrible and they needed so much work," she said. "I thought, 'Oh my gosh, what am I going to do?' I needed somewhere to go."
Mallard Ponds happened to be the last address on her list. She was pleasantly surprised to see entirely new houses available there for under $200,000.
"It's pretty amazing," she said.
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