Why is it So Damn Expensive to Build?

Okay, you’re right. It costs the earth to build new in Michigan or do a significant rehab. But don’t immediately rush to load up the U-Haul and venture off to cheaper climes. All is not lost. The summers are too good here in Michigan, our quality of life is outstanding, we have some of the most highly rated universities in the country, and you’ll really want to hold onto your stake here once you read up on climate change. If you do your research, you’ll also find that it’s not necessarily any less expensive in most places elsewhere. At least for locations that folks might want to choose, and in many cases, you’ll find that costs of living are higher.

Now that we have examined some of the underlying factors contributing to increased construction costs, and determined that staying in Michigan is still a pretty good bet, let’s address some of the challenges facing communities that reflect these factors and provide some strategies for successfully pushing back into the market.

Ypsi_Cycle_Rehab_2018

The former Ypsi Cycle building in downtown Ypsilanti, undergoing a complete gut and rebuild.

Strategy One:
Acknowledge that construction, new or rehab, is going to be expensive.

The first step is always to admit there is a problem. We have all heard the grumblings: “New construction is so expensive, developers are building only luxury lofts to turn a profit.” As discussed in a recent Strong Towns article, acknowledging that something is expensive is not necessarily a criticism. It is, however, a requirement for realistically tackling the problem that even when new housing units are created, they are often out of reach for working Michiganders.

Prioritization of supports to incentivize new workforce housing by reducing land acquisition costs and providing predevelopment technical legwork can help set the stage for the creation of new missing middle housing units. The Michigan Economic Development Corporation’s Redevelopment Ready Communities (RRC) program aims to help get cities prepared to attract and accommodate appropriately scaled development in the heart of cities, with built-in walkability and connections to existing community amenities. The League has provided several cities with predevelopment assistance through this program, with success stories reported out on our Developing Great Places page.

We cannot make building cheaper. In fact, we should advocate for lasting quality of construction in city cores regardless of occupants because of the value of creating a durable building stock which can pivot in use over time. We can, however, also focus on shifting costs such as utility hookups, environmental remediation, site prep, and even in some cases, architectural design work, to public entities to remove barriers for desired development formats in targeted locations in our existing downtowns. We can lower costs to purchase municipally owned vacant or under capitalized buildings. We can incentivize historic rehab of aging building stock with the re-establishment of the Michigan Historic Tax Credit and the upcycling of our aging industrial and commercial buildings to housing use.

As advocated by the National Development Council, we need to persist in clarify public interest in targeted growth, which could be alleviated with the easing of public bonding limitations and the promotion and expansion of housing-focused CDCs. Another tack is to watch as Michigan’s community capital investment scene continues to grow and expand while explicitly voicing our interest in local investment opportunities underwritten by local people, as enabled by Michigan’s MILE Legislation.

In the meantime, while such policies and instruments are being built, we can keep working our local economic development networks to convince those with the cash to free up capital to invest and traditional banking institutions to give developers the financing instruments they need to do the projects we want.

Strategy Two:
Make friends with people who know how to build stuff. Then scaffold your way up and support and advocate for skilled trades training programs.

Get it? “Scaffold” your way up? It was just too good of a joke to plaster over.

Every builder must balance the price of materials with the cost of time and labor. In some cases, the investment is in time and experience through apprenticeship programs and on-the-job training. Even a simple bathroom remodel or rec room addition can bring into stark light the lack of skilled tradespeople in some Michigan markets. Many experts departed our communities in the dark days of the Recession and the gap left behind has not yet been filled.

According to advice from the Incremental Development Alliance, a group of developers working to promote small-scale construction and rehab in existing city centers, working with local community partners for a common vision goes a long way toward cultivating a culture of slow and steady growth in small and medium sized contractor companies.

As shown by IncDev’s work in several cities across the United States, this type of approach works best when projects are patterned after regionally familiar building forms to fit into existing neighborhoods where housing is wanted by the community and called out as desirable in updated master plans. These projects are just-right-sized to get done by smaller crews and provide relatively stable and predictable demand for growing a construction crew one person at a time. And these types of projects tend also to fall into the not-quite-so-scary scale when seeking approval through local planning commissions. In the case of Chattanooga, Tennessee, a rapidly growing tech hub, “city administrators are collaborating to find ways to fast-track the proposed Missing Middle housing and minimize some of the risks and expenses which disproportionately stymie small multi-unit developments.”

Once developer confidence is built through municipal support and market analysis, sometimes all it takes is to start with one experienced contractor. Bring them in to get started with one site, gradually add team members, and set up a pipeline of projects to keep them in steady work.

Strategy Three:
Know your community’s data and demonstrate pent up demand.

Our state’s demographics are rapidly changing. In 2018, according to the American Community Survey, Michigan’s average household size is only about 2.5 people. Only about 22% of all Michigan households include children 18 years old or younger. To parse it another way, people in their 20s and 30s are choosing to prioritize education or careers and delay or entirely opt out of traditional marriage partnerships and childrearing. In older age brackets, we have a growing segment of longer-living, healthy seniors over the age of 65, many of whom are no longer partnered due to loss, divorce, or choice.

What does this mean? While nearly half of Michigan’s households have two spouses or partners living together, many households have only one adult. Even if you don’t want to live in a small apartment or a modest condo, many people do.

We are experiencing a rising demand for smaller housing options because people simply don’t desire or cannot afford that much space, but they do want to be connected to others in walkable neighborhoods. While a four bed, three bath Colonial with a pool and a 20-minute drive to town may be perfect for some of our households, the data tells us that large-lot, car-dependent housing options are abundant in many markets yet are probably not the best fit for the majority.

As we continue to witness these changes in our communities, in the lives of our own families and friends, we must track and present data on the pent-up demand for the creation of affordable and middle-income housing in walkable, real places. And if they’re connected to public transit to reduce car usage, all the better. When we think of who wants these kinds of housing – your 27-year-old daughter who finally finished school and just getting her career off the ground; your best friend who would rather pour her heart into being a pet parent than manicuring her lawn; your 70-year-old dad who has chosen to buck tradition and not decamp to Florida like his parents did; or maybe just you – we can and will respond to these needs with a more personal urgency.

Keep Thinking About the Why.

By setting proactive public policies and developing incentives to prioritize the expansion of these market segments, we’ll not only be taking care of our economy, we’ll be caring for the people we care about, too.

Yet with these factors in mind, we can continue to focus our efforts on building collaborative relationships with all involved to mitigate the underlying cost factors and make these projects not only worthy of investment but also creatively and appropriately financed. We can accomplish these goals by seeking more accessible financing instruments, encouraging reasonable expansion, holding a focus on appropriate density, elevating examples of right-sized builds, promoting the cultural and ecological sense of building reuse, and helping demonstrate the need for growth in skilled trades programs to carry out this work.

In the end, the most important thing to remember is that when we engage in conversations about the high cost of construction, both new builds and rehabs, there are many reasons behind those price tags. And there is also a myriad of reasons why quality construction needs to take place when thoughtfully building quality 21st Century Communities.

Read more on how to plan and do these kinds of projects in our Placemaking How-To toolkit at:  http://placemaking.mml.org/how-to/