Michigan’s Housing Shortage: What It Means for Detroit Landlords
Michigan is facing a significant housing shortage. But how bad is it really?
According to real estate expert Michael Perna, who recently appeared on Fox2Detroit, the numbers are stark. He says that data from the Census Bureau and the Southeast Michigan Council of Governments shows “we’re short 50,000 to 60,000 houses right now today in real time.”
This isn’t a future projection; it’s the current reality. And as Perna points out, “all that’s doing is continuing the upward pressure on pricing.”
Governor Gretchen Whitmer addressed this issue directly in her latest State of the State address, proposing new initiatives to spur development.
So, what does this environment—a massive housing deficit, rising prices, and new government intervention—mean for a rental investor in Metro Detroit? 🤔
Let’s break down the situation and what it means for your investment strategy.
The Core of the Problem: No Starter Homes
For decades, the path was simple: rent for a few years, save up, and buy a small, affordable starter home.
Today, that path is mostly a dead end. The housing stock just isn’t there.
The shortage is most acute for the very properties that first-time buyers would typically purchase. As Perna explained, what’s considered “affordable” in today’s market is around $300,000.
However, builders are struggling to make a profit on lower-priced homes.
“Builders are finding it very hard to build anything below $475,000 because not only is there no profit, but they’re starting to go negative on those numbers,” Perna said. “If they’re building at $400,000, they’re losing $10, $15, $20, or $30,000 per build.”
This economic reality is why most new construction is trending toward the $700,000-$800,000 range. With no one building affordable starter homes, would-be buyers are forced to stay in the rental market for longer.
This dynamic creates a few key outcomes for Detroit landlords:
- A Deeper Tenant Pool: The number of people looking for quality rentals is growing.
- Longer Tenancies: With fewer options to buy, tenants are staying in their rental homes longer, which means less turnover for you.
- Increased Demand for Quality: These aren’t just recent college grads. Many are established households with stable incomes who would have been homeowners in a different market. They expect and are willing to pay for well-maintained properties.
Essentially, the housing shortage is forcing more people to rent longer, leading to a tenant boom that’s been taking place across America. The average age of a first-time homeowner in the US is now 40 years old, the highest it’s ever been in history.
Can Government Intervention Fix This?
Governor Whitmer’s plan aims to tackle this head-on. She’s proposing a new affordable housing tax credit designed to “‘build, baby, build’ more housing and give young people a chance to put down roots in Michigan.”
This plan is to:
- Establish a new statewide building tax credit to incentivize new construction.
- Change zoning to allow for multi-purpose lots (e.g., building a quadplex instead of a single-family home).
- Reduce expensive requirements, like the number of parking spots needed.
If the plan succeeds, it could make it profitable for builders to construct more affordable housing. A tax credit of, say, $30,000 could be passed on to the buyer, making a new home more attainable.
But don’t hold your breath for immediate relief.
Even in a best-case scenario, Perna estimates it will take at least 18 months to see results. Developers still need to acquire land, get permits, install utilities, and then build the homes.
What About Those Dropping Mortgage Rates?
You might have seen the news that mortgage rates recently dipped below 6% for the first time since 2022.
That’s great news for homebuyers, right? It should make buying more affordable and cool down the rental market, shouldn’t it?
Well, not so fast.
While lower rates will certainly help some buyers, it doesn’t solve the fundamental problem: the lack of inventory. A 6% mortgage rate is better than a 7% one, but it doesn’t magically create 60,000 new homes. As Perna warns first-time buyers, “Don’t wait.”
He expects “upwards pressure on home prices over the next two years,” especially if the Fed lowers rates further. His logic is sound: “We can bring that payment back down in 6 months once the rates come down, but I can’t get you that price back.”
For landlords, this means the “tenant boom” we’ve been seeing isn’t going away anytime soon. The structural housing shortage is a much stronger force than a modest dip in mortgage rates.
The Opportunity for Landlords in Detroit
Here’s our advice for landlords who want a logical strategy to succeed in this market:
- Focus on Quality Rentals: The demand isn’t just for any rental; it’s for good homes. Properties in desirable Class B neighborhoods that are clean, well-maintained, and professionally managed will attract the best tenants. Think of the inner-ring suburbs where people want to live but may be priced out of buying.
- Buy and Hold: The long-term outlook for the Detroit rental market is strong. The housing shortage isn’t going to be fixed overnight. Investing with a long-term perspective will allow you to ride the wave of appreciation while enjoying consistent cash flow.
- Expect Continued Rent Growth: As property values and operating costs rise, so will market rents. This provides a natural hedge against inflation and increases your property’s cash-flow potential over time.
- Embrace Professional Management: With a deeper and more discerning tenant pool, the “slumlord” model is dead. Tenants expect professional service. Having systems for maintenance, communication, and rent collection is no longer a “nice to have.” It’s how you compete and win.
The housing shortage is also fueling positive changes for the city as a whole. As new construction projects (finally) get off the ground, we will see revitalized neighborhoods and an upgraded housing stock.
Homeowners who are able to buy will likely invest more in their properties, improving entire blocks.
A rising tide lifts all boats.
The Logical Conclusion
The Michigan housing shortage is creating some serious headaches for would-be homebuyers. But for savvy rental property investors, it’s creating a clear and powerful tailwind.
The combination of limited housing supply and sustained rental demand creates a fantastic environment for long-term, cash-flowing investments.
The key is to understand the market, invest in quality properties in good areas, and manage them professionally. If you can do that, the current market dynamics are set up to make you a very successful landlord in Metro Detroit.
The opportunity is there for the taking.
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