News and analysis from The Center for Michigan • http://thecenterformichigan.net
©2014 Bridge Michigan. All Rights Reserved. • Join us online at http://bridgemi.com
Original article URL: http://bridgemi.com/2013/07/shifting-middle-class-fortunes-transform-michigans-cottage-on-the-lake-lifestyle/
16 July 2013
Richard and Patricia Dolland spent countless warm summer days and cold winter nights in their rustic cottage in Northern Michigan.
Every few weeks, they’d drive three hours north from their Macomb County home to the cabin that Richard himself built 40 years ago south of Grayling. They spent at least a week there each summer nestled among the pines. In the winter, it was home base for snowmobiling.
For Richard, now 75, it was a haven from his job managing a small factory that made parts for the auto industry. Far from luxurious, the cabin was a gathering place for family and friends –typical of the thousands of unassuming cottages dotting the Northern Michigan landscape.
“We’d get up there, and there wasn’t any phones,” he said. “Deer would come right up to the back door. Very peaceful.”
So it was with some regret that the couple last year decided to list their little piece of paradise for sale. When they approached a real estate agent, “he told me it was a waste of time,” Richard recalled. “‘Nothing’s moving up here.’”
The Dollands listed it anyway and accepted an offer. He’d rather not say for how much, except that it was far less than he figured the place was worth.
Lots of other owners, many of them current and retired autoworkers, are finding little demand for the small, Up North cottages that once were a sanctuary and a status symbol for Michigan’s working middle class.
Michigan’s factory workers weren’t always affluent enough to afford that little place in the woods. Their fortunes began improving after the founding of the United Automobile Workers in the mid-1930s. After World War II, as wages and benefits increased, many of Michigan’s factory workers found themselves moving comfortably into the middle class.
“You’re talking about somebody who was making $50,000 a year and, with overtime, $60,000 a year,” said Richard Block, professor emeritus of human resources and labor relations at Michigan State University. “You could afford to have a house in Detroit, and you could save up and have a cottage Up North.”
Over the past 15 years or so, that began to change. Since January 2000, Michigan has lost nearly 353,000 manufacturing jobs, mostly in the auto industry, according to the U.S. Bureau of Labor Statistics. In 1989, 26 percent of Michigan’s labor force belonged to unions, the bureau reported. By 2012, the year the Legislature and Gov. Rick Snyder made Michigan a Right to Work state, union membership had dropped to 16.6 percent, a loss of 42,000 unionized workers in one year. The largest decline in union membership was in the private sector, including factory jobs.
In recent years, the UAW and the automakers agreed to implement a two-tiered wage system, paying new workers at a lower rate than the long-time employees.
For decades, per capita income in Michigan was among the highest in the nation, ranking 17th among the 50 states in 1999. A decade later, it had dropped to 40th, and by last year had only climbed back to 35th, still well below the national average.
“Even the best-paid workers haven’t kept up with inflation,” Block said. “So you have fewer workers making less money.”
With less disposable income, many of those workers are cutting back or forgoing the luxuries that once were a staple of Michigan’s middle class.
“I would say a second home is probably among the more discretionary comforts,” Block said. Many of today’s factory workers “probably aren’t going to be buying cottages Up North the way their fathers and grandfathers did. It’s likely to change the face of Northern Michigan.”
Some real estate agents say it already has.
While the high-end market for second homes has bounced back from the recession, the tiny, north woods cabins in places such as rural Kalkaska County remain a tough sell.
“A lot of them are just sitting there,” said Chad Brown, owner of Traverse City-based Homewaters Recreational Real Estate. “Right now I look at it and say, everybody used to dream of their little place Up North. I just don’t see that anymore.”
In some ways, the numbers of seasonal homes in Michigan parallel the rise and fall of the auto industry. In 1940, 4.9 percent of all houses in Michigan were for seasonal or occasional use, according to the U.S. Census Bureau. By 1960, 6.7 percent were seasonal. By 2000, the proportion of Michigan homes designated seasonal had declined to 5.6 percent, and Michigan no longer was among the top 10 states in the percentage of homes used for vacations.
After 2008, when the Great Recession hit and the housing bubble burst, residential property values in some Northern Michigan counties dropped by 30 percent. That was a shock not only to the homeowners, but to the local governments that depend on property taxes for most of their revenue.
In Crawford County, for example, the state equalized value of all property (theoretically half the market value) was $775.5 million in 2008. By 2012, it had dropped to $589.4 million, a 24 percent plunge. Wexford County saw a similar decline in state equalized value of residential property from $973.4 million in 2007 to $704.7 million this year.
Some northern counties actually lost housing units the last three years, as some homes and cottages apparently were torn down and not replaced. Clare County, for example, had 23,228 housing units in 2010. By July 1, 2012, the Census Bureau estimated it had 23,149, a loss of 79 units.
Not every part of Northern Michigan saw such a drastic decline in the numbers of second homes or the interest in buying them. The higher priced vacation homes along some rivers and in several communities along Lake Michigan have rebounded nicely from the recession, several real estate agents said.
Many upper-income buyers took advantage of the sliding prices for vacation homes, often paying cash, thus avoiding the risk of being underwater, or owing more than the house is worth.
“They’re not going to the bank and getting loans,” said Bob Budreau, broker for Greenridge Realty in Ludington. “It suggests to me they don’t want to get into the problem a lot of their friends have.”
Sean McDonald, who also sells for Greenridge in Ludington, estimated 80 percent of his sales are for second homes. “In a nutshell, what I’m seeing is the middle class used to have overtime,” he said. “They would borrow, borrow, borrow to the hilt. Now more are cash buyers.”
He and other agents who specialize in vacation homes said an increasing number of their buyers for the higher-priced “cottages” – a word that hardly seems appropriate for the lavish vacation homes in some lakeshore communities – are from out of state.
“We get them from Indiana, Illinois, New York,” said Grand Traverse County Register of Deeds Peggy Haines. “They’re really picking this town now. I think the biggest thing is the out-of-state people who have the money to buy the waterfront property.”
While Michigan’s average home prices were in a 20 percent free-fall between 2007 and 2011, home values in Traverse City actually increased slightly.
Farther south along Lake Michigan, many buyers are from suburban Chicago, a city whose well-heeled residents long have sought a break from the summer heat on the Michigan side of the lake. Al Capone once owned a place on Lake Michigan. More recently, the southern Lake Michigan shore has attracted such high-powered Chicago residents as Mayor Rahm Emanuel and former Obama adviser David Axelrod.
But that’s an entirely different class of owners than those who once drove the vacation home market in Northern Michigan.
“We now notice we get very few cottage buyers who are employed by the auto industry,” said Craig Hinkle, owner of Re/Max of Grayling. “It takes two incomes to run today’s middle class family. The auto workers are being taken over by two-income families.”
As a result, there is a glut of lower-priced listings. Cottages that once were worth, say, $50,000 now are selling for $30,000. Many are being bought by investors.
“They’re buying them cheap, fixing them up cosmetically and renting them out,” said Crawford County Equalization Director Kevin Hunter. “I’ve seen some investment groups picking up vacation properties. Some of them are getting flipped. Some of them they’re hanging on to for we don’t know what.”
As vacation homes, the cottages are taxed at a higher rate than are primary homes, a likely disincentive to potential buyers.
“I had a lot of complaints from people who worked for the auto industry who’d call up and say, ‘I can’t afford the taxes on it anymore,’” Hunter said.
And some potential buyers are reluctant to take on that expense to begin with, said Lance Weyeneth, owner of Gaylord-based Headwaters Realty, which specializes in riverfront property.
“We still believe in the American dream: if you work hard enough, you can go out and get it,” he said. “I’m not suggesting the dream has gone, but I think there are a lot of pressures that make them think whether or not they want to extend themselves.”
Then there’s a generational shift. Many children of the auto workers who built those cottages are less interested in spending their vacations Up North or taking on the expense, Weyeneth and other real estate agents said.
That’s what Richard and Patricia Dolland discovered when they decided it was time to pass their cottage on. One of their two sons was interested, but he died recently. As for the other one — “he’s more of a city feller,” Richard said.
“I look back and say, ‘it was a lot of fun,’” he added, but “nobody wanted to go up there anymore, just my wife and I. But you can only stare at each other so long.”
Pat Shellenbarger is a freelance writer based in West Michigan. He previously was a reporter and editor at the Detroit News, the St. Petersburg Times and the Grand Rapids Press.