Construction of Student Apartments Is Far Outpacing Enrollment at MSU. What Comes Next?

The current pace of construction of new student-focused housing is far outpacing any growth in student enrollment at Michigan State University according to a consultant hired to study housing in the City of East Lansing. Meanwhile, it remains challenging for families and people on the lower end of the income spectrum to find homes in East Lansing, whether they are looking for rentals or homes to purchase.

On Tuesday this week, real estate expert Sharon Woods of LandUseUSA presented these findings as part of her second presentation to City Council. This time, she got beyond the introductory level, showing the more meaty findings of her study.

According to Woods, the student population is not growing, but the amount of housing aimed at students definitely is, particularly when you take into account projects like the big, new apartment complexes just over the Lansing border.

Yet there will be even less need for off-campus student housing when MSU’s new housing policy, requiring that sophomores live on campus, takes effect in Fall 2022.

Woods said that there is, at this point, probably a risk of over-building for the student market.

But, she said, such a boom could create “a release valve,” including one that could “take some of the pressure off the housing market for students that are scrambling to rent detached houses or, you know, anything they can find” nine or more months in advance of the start of a lease.

Council member Ron Bacon noted that full occupancy is never the expectation with rental properties.

And Woods suggested that increased vacancy rates in student housing could mean that houses that are now rented could fall vacant, drop in sale price, and be sold to families buying them as fixer-uppers to live in.

But, she warned, we can’t easily know what the “chain reaction” might be. Many experts in East Lansing real estate have said students are unlikely to want to give up the perceived benefits that come from renting a detached house.

At Tuesday’s meeting, City Manager George Lahanas said he was interested in the idea of “building more and more” to “try to drain out” the rental houses to make them available to families, but he expressed frustration that what is being built is on the high-end of the cost spectrum.

Said Lahanas, “It seems that the new product that is going on and [what] people want to build is always at the premium end, which excludes so many people, you know, from access to it – it’s higher rents, high-rise . . . and people aren’t necessarily willing to build the stuff that is slightly more affordable.”

While Lahanas referred to expensive rentals, no one mentioned, in this discussion, the issue of Newman Lofts – a private rental apartment building for seniors, constructed on public property that has been land-leased at a discount to the developers for 49 years because they promised senior rental housing. The developers, Harbor Bay Real Estate and Ballein Management, have been claiming for years that the project is not viable if restricted to age 55+.

Many commenters have said the Newman Lofts rents are simply set too high and that occupancy will go up if rents are lowered. The report from Woods’ firm does indeed show that current rental prices in Newman Lofts are at the very top of the local rental price scale for area apartments.

Another possibility suggested by Woods for diversifying East Lansing’s residential housing stock and population is to have nearby municipalities like Lansing and Meridian Township be the sites of more student-attracting development.

This, she said, could open up market space in East Lansing for other options, especially if the student rental market softens from the building boom. Related to this, Woods said that East Lansing could opt to work with prequalified developers to give them special deals to build housing here aimed at non-student market categories, or to streamline the review process for certain types of buildings.

She said she has hired the sub-contractor Justin Sprague of Community Image Builders/CIB Planning to present “a housing strategic plan” for East Lansing, including ideas of what the City can do to change its policies and practices to diversify the housing stock and residential population. The expectation is that Sprague’s report will include analysis of such regulations as Ordinances 900 (aimed at stopping houses converting to rentals) and Ordinance 1384 (aimed at diversifying housing downtown.)

Right now, says Woods, students so dramatically swamp out every other category of possible resident that other groups find it extremely difficult to locate housing in East Lansing that meets their needs.

But, she says, a market definitely exists if a developer wants to build for other markets, like singles and couples interested in renting small “cottages,” or young professionals interested in renting “loft” apartments. The challenge is always that students might flood such new projects, too. (People cannot be discriminated against in housing on the basis of student status, and the only legal age restriction for projects starts with age 55.)

Mayor Pro Tem Jessy Gregg explained that Council is not interested in restricting students, but rather in trying to achieve a more balanced residential population with more options for non-students. Mayor Aaron Stephens said he wants to see retention of “talent” – professionals who move away because of lack of appropriate housing options in East Lansing, while Council member Dana Watson said she wants to see more housing for single-parent households and more mixed-income neighborhoods.

In response to questions about why the market keeps going in the direction of more student housing, Woods explained to Council that it is far more profitable for a developer to build for students than non-students in this market. A two-bedroom unit rented to a small family might go for, say, $1,000 per month, but students in a similar two-bedroom unit might pay $700 each. And the students will generally not demand amenities as nice, although they are on average harder on the properties.

Council member Lisa Babcock asked why developers would still construct more student housing knowing that market is reaching a flood stage. Woods responded that developers think they can compete by offering newer housing because of the fast turnover of renters.

The report presented to Council notes that student renters “churn” through the market: “About 12% of all existing [home]owners in the East Lansing [area] moved into or within the city last year, which is higher than the average of 8% for the State of Michigan. About 63% of all renters in East Lansing moved into or within the City last year, which is significantly higher than the statewide average of 29%.”

Talking about trying to bring greater “diversity” to East Lansing’s residential population, Woods said, “The way to address diversity inequality is with moderate price points that are attainable and tolerable for households that are on the move and that are actually migrating, and many of them are lower income, singles,” and renters. She did not explain in detail how the City could promote this kind of affordable housing but hinted that Sprague might address these issues.

According to the report submitted by Woods, right now, “Developers should avoid labeling entire projects or entire buildings as affordable, luxury, subsidized, multi-family, student, or worker housing. Instead, projects and buildings should be described according to their format and size; and marketing should be customized to appeal to a diverse group of target markets (lifestyle clusters.) This will help diversify project risks while also supporting socio-economic and cultural diversity.”

This did not, however, address whether such “diverse” projects are economically feasible.

More presentations are expected at Council as well as at East Lansing’s Housing Commission and Planning Commission.