AAs the statewide affordable housing shortage shows little sign of easing in the near term, different schools of thought have emerged on how to address the problem. These include supporting new housing at all price levels or focusing limited public resources on the lowest income households.

Governor Gretchen Whitmer announced in March that $150 million of the state’s American Rescue Plan Act (ARPA) funds are being earmarked to build new housing and rehabilitate existing housing across the state. This would be divided into three different grant programs: $50 million for the Housing and Community Development Fund to help low-income families; $50 million for gap funding to create “missing middle” housing; and $50 million for residential housing improvements, including grants to encourage energy-efficient housing.

The “missing middle” refers to housing that is a notch or two above affordability for the lowest income households. The missing middle is also referred to as labor housing and may include market-priced housing.

“We are pleased that these two state allocations target the two demographic groups that have been identified as needing support,” said Brooke Oosterman, director of policy and communications for the housing advocacy group. Housing Next. “These programs target what we call initial construction costs. We know that labor shortages and the cost of construction make it very difficult to build new construction at either of these price points without a major subsidy, so we’re glad these dollars are reducing these costs.

The Michigan State Housing Development Authority (MSHDA) plans to launch the $50 million Missing Middle Housing Program in September to renovate or build new workforce housing. Nonprofit developers, as well as partnerships between nonprofit and forprofit developers, can apply for the ARPA-funded program beginning September 19.

“After engaging stakeholders and the public, I believe we are delivering the program in a productive and collaborative manner,” Chad Benson, MSHDA’s chief development officer, said in a statement. “There has been a lot of interest and feedback, and we anticipate this will be a key housing resource for those working to meet the acute housing needs of our state’s workforce.”

Limited resources

However, public funding of potentially market-priced housing has recently drawn criticism from a national affordable housing advocate.

Diane Yentel, president and CEO of the National Low Income Housing Coalition, said at the Grand Rapids Area Chamber of Commerce‘s August 16 Policy Conference that state and federal relief funds should be directed to affordable housing projects for the most severe low-income households.

“Federal resources should not be used to subsidize market-price housing,” Yentel said of Michigan’s missing $50 million interim allocation. “Limited resources must be targeted where the greatest need is.”

Yentel noted a shortage of 7 million homes nationwide for the low-income population.

“For 10 lowest-income households, fewer than four apartments are available to them,” she said. “The shortage is widespread. There is no community that has enough housing for the most modest residents.

Michigan has 319,644 households that are considered very low-income renter households, according to the Yentel organization. Very low-income tenant households have incomes at or below the poverty line, or 30% of the region’s median income. The hourly wage needed to afford a modest apartment is $18.55 an hour in Michigan, which is “clearly higher than what the lowest-paid workers earn,” Yentel said.

About 38% of all Grand Rapids jobs in 2019 were in low-paying industries where the estimated annual salary ranged from less than $20,000 to $35,000, according to US Census Bureau data.

The private market alone cannot afford to build homes for the lowest incomes, Yentel said.

“It’s a market failure that requires government intervention in the form of subsidies. The scale of the challenges we face across the country necessitate government intervention,” she said.

Construction costs

Developers often say that building new developments with any level of tenant affordability is essentially impossible without multiple incentives. This has increasingly been the case with the general rise in construction costs. Construction input prices fell in August from July, but are still up 17% from 2021, according to recent analysis by Associated Builders and Contractors.

Meanwhile, rent increases to offset those costs “will lead to increased homelessness,” Yentel said.

“The long-term solutions are simple if not easy, and quite obvious when we recognize that the private market alone cannot build and operate homes for low-income people,” Yentel said.

Recent housing analyzes have shown a need for tens of thousands of new homes – in all price points – in Ottawa and Kent counties over the next few years to meet demand.

Housing investments at all price points are important to advancing the state’s housing crisis, Oosterman said.

“We know the needs are great in both segments, and we also know that providing more housing opportunities at the missing mid-level will also increase homeownership opportunities due to greater mobility across the market,” Oosterman said.

– Editor Andy Balaskovitz contributed reporting for this story.