West Michigan/Grand Rapids Economy

[x99]

Is it that the availability for land is at a premium? One thing I had heard is that Commodities (corn, wheat, etc) are near an all-time high. Does that mean the availability of large parcels of land is low? Or is the appetite for building the infrastructure for a large scale development (a la Eastbrook) low at this point (once bitten, twice shy)?

A lot of the new lots over the last couple of years were completions of old projects.  That left an affordable supply for awhile, but it is basically dried up.  It can take a year or more to go through site acquisition, surveying, and municipal approvals and other legal hurdles before a shovel even hits the ground.  The few lots in decent school districts are starting at $60,000, and houses at $300,000.  At least some of the issues for new construction starter homes have to do with the lot width requirements and green space requirements.  Instead of traditional deep, narrow lots, most "modern" codes around here require wide, shallow lots.  This drives infrastructure costs through the roof.  Byron Twp has a minimum 90' lot width, which essentially precludes affordable lots and assures vast amounts of wasted land.  Gaines Twp is 80'.  They also often require 24' wide streets.  Every lot, by law, is a luxury lot, and abuts a street wide enough and built beefy enough to handle 8,000 cars a day.  It's absolute lunacy, and it destroys your ability to accommodate an influx of jobs and people.   If someone could throw up a subdivision with 50' or 60' lots on 16' wide streets with 1600 square foot above graded houses, they would probably do it.  But they can't.  The zoning codes were all designed to preserve "rural character" (and ironically ensure it is completely destroyed).

Edited September 11, 2015 by x99

[GRDadof3]

 

That is true. Those can be amended with a PUD, if done properly, but they usually face a lot of resistance (the new townhomes in Rockford for instance). But I haven't seen a lot of large scale PUD's put forward in WM in a while. 

It's hard to get people to understand that by trying to "preserve rural" they are in essence destroying more rural area. 

 

[GRDadof3]

Grand Rapids is mentioned in the latest RealtyTrac data as being one of a few metros that have reached a 10 year high in home sales.

http://www.housingwire.com/articles/35138-half-of-major-metros-on-track-to-hit-highest-home-sales-since-2007

The local inventory of homes is anemically low. I've heard of people who had to abandon plans to move here for a job because of lack of housing.

http://www.grar.com/docs/media/august_2015.pdf

(last page)

I think we could use a correction in local land values so that builders can start increasing inventory. 

 

 

 

Edited October 9, 2015 by GRDadof3

[arcturus]

Local inventory even lower now.  Hard to see it dropping much further.  There's always property out there which for one reason or another hasn't sold including sellers listing at unrealistic prices.  I'm seeing new single family homes recently completed on spec that aren't moving because they're simply priced too high.

Multi-family is booming to no one's surprise.

http://www.grar.com/docs/media/september_2015.pdf

Edited October 22, 2015 by arcturus

[GRDadof3]

Local inventory even lower now.  Hard to see it dropping much further.  There's always property out there which for one reason or another hasn't sold including sellers listing at unrealistic prices.  I'm seeing new single family homes recently completed on spec that aren't moving because they're simply priced too high.

Multi-family is booming to no one's surprise.

http://www.grar.com/docs/media/september_2015.pdf

 

Unemployment dropped once again in September, pretty much full employment in the 3% range. My guess is the red hot job growth will slow down a bit (grow rapidly but not as rapidly) now that full employment has been reached. I'm still hearing of a lot of companies growing.

New home construction starts cooled this summer (probably because of the nice July/August/September weather) but rumor on the street that this Fall is like a fire hose in new activity and people wanting to build.

 

Edited October 22, 2015 by GRDadof3

[GRDadof3]

These delegations from other cities happen quite a bit now, most of which you don't hear about:

http://www.journalgazette.net/news/local/Idea-mining-in-Michigan-9368356

When it comes to the downtown proper, existing housing is too expensive for most millennials, Adams said. But city officials are working to add housing options across the price spectrum.

Seems like a pretty broad statement coming from someone at the Chamber of Commerce. No?

Edited October 25, 2015 by GRDadof3

[GRDadof3]

Grand Rapids made #2 in the country on this list of best places to own rental property. I sometimes cringe at these reports because it will tend to draw outside investors driving up an already hot real estate market. 

http://www.allpropertymanagement.com/search/michigan/grand-rapids-property-management-companies.html#rental-ranking

Good or bad? 

 

Edited November 5, 2015 by GRDadof3

[GRDadof3]

 

Good. I own property in GR metro. Let the prices rise! 

I'm sure nobody is complaining when their 401ks rise because one of their fund invests in rental related companies. 

 

It doesn't do any good if your rental company stock goes up but your buying power for a home goes down. Even if you sell in an up market and make gains on your home, you're also buying in an up market and pay more. Any undue pressure on a housing market from outside investors/flippers is never good for any real estate market. Look at the runups in Miami, Vegas, Phoenix and other hot markets. Those housing markets still have not purged all of the massive number of foreclosures they had, unlike West Michigan. 

Edited November 5, 2015 by GRDadof3

[MJLO]

 

It doesn't do any good if your rental company stock goes up but your buying power for a home goes down. Even if you sell in an up market and make gains on your home, you're also buying in an up market and pay more. Any undue pressure on a housing market from outside investors/flippers is never good for any real estate market. Look at the runups in Miami, Vegas, Phoenix and other hot markets. Those housing markets still have not purged all of the massive number of foreclosures they had, unlike West Michigan. 

Are we in a better position because the majority of new housing starts are coming in the form of multi-family?   If population growth continues as it is will bigger home builders get back in the market?

[x99]

It doesn't do any good if your rental company stock goes up but your buying power for a home goes down. Even if you sell in an up market and make gains on your home, you're also buying in an up market and pay more. Any undue pressure on a housing market from outside investors/flippers is never good for any real estate market. Look at the runups in Miami, Vegas, Phoenix and other hot markets. Those housing markets still have not purged all of the massive number of foreclosures they had, unlike West Michigan. 

The foreclosure "crisis" actually wound up cleaning up an enormous number of trashed houses.  What I'm seeing of now, though, are a bunch of badly done flips that aren't getting asking prices.  That's actually a good sign.  The rental market, on the other hand, has me worried.  A lot of inventory is going to come online that was built with zero regard for market demand.  It was simply, "build, build, build" and it could all end up very badly.  We'll find out in about two years when the initial leases come up for renewal (and the allure of "brand new" has lost a little bit of its shine).  If we find out in a year because they can't even rent the huge amount of new stuff coming online... well, let's hope not.

[Allison Slater]

Correct me if I'm wrong, but I'm hoping a lot of outside interest comes in to build new rental projects for my sake, as a renter.  I live in Heritage Hill at a rental rate that is essentially a steal, but that will be ending in 9 months as the landlord moves out and converts it into a 3-bed rental rather than a 1-bed rental.  I worry about with the high demand for rental and not enough stock lessening that demand, that I may be priced out of downtown and forced back into the suburbs.

[GRDadof3]

The foreclosure "crisis" actually wound up cleaning up an enormous number of trashed houses.  What I'm seeing of now, though, are a bunch of badly done flips that aren't getting asking prices.  That's actually a good sign.  The rental market, on the other hand, has me worried.  A lot of inventory is going to come online that was built with zero regard for market demand.  It was simply, "build, build, build" and it could all end up very badly.  We'll find out in about two years when the initial leases come up for renewal (and the allure of "brand new" has lost a little bit of its shine).  If we find out in a year because they can't even rent the huge amount of new stuff coming online... well, let's hope not.

 

I guess it depends on where you stand, because I'm not really all that concerned if the apartment developers experience a "correction" in values. They have multiple layers of financing and investors that can absorb that. Me on the other hand, as someone who owns two homes and will probably buy or build another in the next year or so, will get hit with artificially rising prices on the buying side; up to a price that I'll be lucky to get as a resale 5 or 10 years from now. Like temporaryname mentioned, the market is getting almost to a point where everyone is buying high. It's supposed to be buy low, sell high.

Like people who bought in 2006 and 2007 who are lucky if they're getting what they paid for their homes now. People who bought in 2002 and 2003 are enjoying some pretty healthy gains in their house values, so they're sitting on them (why the number of listings is anemically low) or tapping into home equity to do renovations aka HGTV/Houzz/Pinterest style. 

Artificially inflating a market or "hyping" a market to outsiders is almost always a bad idea when it comes to a local mid-sized housing market, rental or otherwise. Then we have HGTV stars in town giving seminars trying to make every Tom Dick and Sally a house flipper. I'm going to go out on a limb and say that the first Powerpoint slide they show is one showing Grand Rapids as the #2 rental property market in the country with a 1.6% vacancy rate..

The end result is that housing and rents become unaffordable for a large segment of the population. In retrospect I probably shouldn't have posted the report.  

 

Edited November 6, 2015 by GRDadof3

[Jippy]

I haven't really gotten the sense that we are seeing an overbuild situation in apartments in Grand Rapids, even if everything that has been proposed actually gets built. Overbuilding apartments will only lead to lower asking rents, which will allow an even greater share of the population able to afford the units. Additionally, some developers may have plans to convert their product to condos if values reach a certain price threshold. 

Grand Rapids has lagged in population and economic growth for decades. We may have turned the corner, where GR now attracts population and economic growth that historically went elsewhere. If that is the case, then outside real estate investment is a great macro-economic indicator.

[EastownLeo]

http://www.mlive.com/news/grand-rapids/index.ssf/2015/11/grand_rapids_affordable_housin.html

 

Micro Units?

[arcturus]

Ask people in growth areas like Seattle, Denver, Phoenix, etc whether they felt they were 'buying high' 15 - 20 years ago, or even 5 years ago in certain locations.  My guess is they would all say yes.

[GRDadof3]

http://www.mlive.com/news/grand-rapids/index.ssf/2015/11/grand_rapids_affordable_housin.html

 

Micro Units?

I was going to post that article. It may merit its own thread...

[x99]

Micro Units?

Amen.  It's called a studio, and we used to build lots of them.  Good move.  

 

As far as crashing rents, my concern is that it can bring construction to a huge halt while dealing with the overhang, and scare off investment for a long time to come.  It may not happen, but it frightens me when I hear an unnamed lead developer say he has no idea what the demand will be for their units, or where they will price them.  That's craziness.  With condos you at least had some sort of pre-build commitments.  

[Allison Slater]

A studio is more of a single-room unit, where there is no separate bedroom.  It's a multi-use room, kitchen, bathroom, and closet.  They aren't always micro, there are some large studios.

[GRDadof3]

At some point, something's gotta give, right? 

http://www.rejournals.com/2015/11/09/lack-of-supply-slowing-the-growth-of-west-michigans-retail-market/

While I get what they're saying about the retail being added in the small mixed use projects, I think Collier's report is talking more about large-scale retail (lack of supply). 

 

And in other hiring news: 

http://www.crainsdetroit.com/article/20151108/NEWS/311089998/west-michigans-it-community-is-booming-but-struggling-to

Edited November 10, 2015 by GRDadof3

[Ted]

 

And in other hiring news: 

http://www.crainsdetroit.com/article/20151108/NEWS/311089998/west-michigans-it-community-is-booming-but-struggling-to

Funny, that in 1500 +/- words they never addressed offering higher wages to better address the increased competition in the marketplace... even as the sidebar notes the significant difference between our local market and the national market. There is no talent gap. There is a wage gap.

[crinzema]

Funny, that in 1500 +/- words they never addressed offering higher wages to better address the increased competition in the marketplace... even as the sidebar notes the significant difference between our local market and the national market. There is no talent gap. There is a wage gap.

100% agreed. It sounds to me her problem is attracting and acquiring the talent, not that the talent isn't there. Case in point: "We are not in an era where people are sending in résumés," 

[x99]

Funny, that in 1500 +/- words they never addressed offering higher wages to better address the increased competition in the marketplace... even as the sidebar notes the significant difference between our local market and the national market. There is no talent gap. There is a wage gap.

It may be a problem, but it may not be as big a problem as it appears.  You would need to get down to nuts and bolts to determine whether wages in areas with extraordinarily high costs of living are skewing this.  A programmer making $88,000.00 a year in Grand Rapids is living a whole lot better than one making $100,000 in NYC or San Francisco.  The gap versus the rest of Michigan is very slight.  That said, our tight (and increasingly expensive) housing market may play some role in making West Michigan less attractive than the east side of the state.  

[EastownLeo]

Skilled workers of any sort are very hard to find in the West Michigan area.

Many companies are using recruiting firms to optimize the search and many are offering relocation packages to potential hires.

Culture and a "cool" downtown can perk the ears of potential outside hires, but it is the housing costs, availability and location that will determine whether or not they take the deal.

We have a Manufacturing spine here in the area. At the core there is much movement and seasonal growth, but it is very very difficult to find people to work right now.  Part of it is low pay.  The other issue is that many of these manufacturers are located in areas, with a mismatched population based on the type of worker they need.

Many manufacturers moved away from cities and into rural areas, for lower costs, cheaper available land, and easier transportation of goods.  But the workers they would hire don't live in these areas.

 

[crinzema]

If there is low supply, then it's either because people don't demand the service or they demand it at lower than market rates. Plain and simple. There are plenty of geeks out there, they just happen to move to companies that pay to play, not ones that complain they can't attract talent. 

[MJLO]

I do not know what the advertised salaries for these positions are, I do know that average wage information lags current data.  I can tell you in automotive we are bringing people in at wages higher than the statistical state average for the position, and often with less than desired experience.    I have heard this wage argument before, but living in the midst of one of these battle sectors I just don't see it.  I have to imagine the tech firms in the area are smarter than that and likely are recruiting at wages higher than years old "area average" would suggest.