Metro-Detroit CPI Rises and New Builds Decline

Michigan’s unemployment rate continues to remain stable and below 5 percent, a trend that has occurred since June of 2022. In January of 2024, the State of Michigan’s unemployment rate was 4 percent. While this a good sign, Michigan Labor Market Information Director Wayne Rourke was recently quoted in a Michigan Public Radio article saying that the job market in Michigan is beginning to cool off. He did add though that the job market is still good.

In Detroit, the 2023-2028 Economic Outlook produced as part of the City of Detroit-University Economic Analysis Partnership between U of M, the City of Detroit, Michigan State University and Wayne State University, shows even more optimism. According to report, payroll jobs are expected to increase by 3,000 in 2023 and by 8,900 from now until 2028. Such growth will is expected to decrease Detroit’s unemployment rate to 7.2 percent in 2028. Detroit’s unemployment rate was 8.2 percent in January of 2024, which was a slight increase from where it was in November and December of 2023.

When comparing the unemployment rates of the seven counties in Southeastern Michigan between January of 2023 and January of 2024 we again see signs of economic optimism, with unemployment rates being down or remaining stable for all seven counties. Monroe County had the largest decrease in its unemployment rate between January 2023 and January 2024 at 0.7 percent; it also had the highest unemployment rate in January of 2023 at 4.9 percent. In January of 2024, Wayne County had the highest unemployment rate at 4.7 percent, which is what it was the year before too. Washtenaw County had the lowest unemployment at 2.9 percent in January of 2024.

The charts below show the percent changes in the Consumer Price Index (CPI) on a month-to-month basis and a year-to-year basis for each month in years 2019, 2020, 2021, 2022, 2023 and 2024 in the Midwest Region. The CPI is a measure that examines the weighted average of prices of consumer goods and services, such as transportation, food, energy, housing and medical care. It is calculated by taking price changes for each item in the predetermined group of goods and averaging them.

The first  chart below highlights how the CPI changed on a month-to-month basis between 2019 and 2024. Currently in 2024, the region’s prices were up 0.6 percent in the month of February. The highlights for the change include:

•Overall food prices remained unchanged, but the price of meat, fish, poultry and eggs increase 0.5 percent.

•The energy index increased by 4 percent over the month, due almost entirely to an increased price in gasoline (8 percent). There was a 1.5 percent increase in natural gas services too though.

•Rent (+0.4 percent) and apparel (+ 3.1 percent) also contributed to the increase in the month-to-month CPI increase. This increase was slightly offset by the 0.9 percent decrease in medical care services though.

When examining the second chart, which shows how prices changed on a year-to-year basis,  we see how the CPI advanced by 2.8 percent from the last year.

In January of 2024 the CPI was reported to be 2.8 percent above what it was the year prior, meaning consumer prices continue to rise. Contributing factors to the continued increase in the CPI include

•Food prices increasing 2.2 percent over the last year, with “away from home” food prices increasing 3.9 percent

•The cost of electricity decreased by 5.1 percent, with the 11.3 percent decline in the price of natural gas slightly offsetting the 4.5 percent increase in prices paid for electricity.

•Owners’ equivalent rent of residences increasing 6.5 percent and rent of primary residence increasing 6.3 percent.

Home prices in Metro-Detroit for 2023 again set a record. In December of 2023, the average price of a single-family dwelling sold in December of 2023 was $182,890, according to the Case Shiller Index. In January of 2023, the average price of single-family dwellings sold was $168,300, which is a $14,590 difference from what the average prices were at the end of the year. While average home prices during the first six months of 2023 remained on par with what they were in 2022, the data shows that price began to increase again in latter part of the year.

Between December of 2023 and 2022 the average price of a single-family dwelling increased $13,400; between December of 2023 and 2020 the price increased $41,230 and between December of 2023 and 2014 the average price has increased $85,900.

With the cost of home prices increasing, it also appears the number of building permits being pulled in Southeast Michigan have been declining overall since 2021. The number of single-family dwelling building permits pulled in March of 2021 was the peak between then and now. At that time, 618 single-family dwelling building permits were pulled. The highest number of single-family dwelling building permits pulled in 2023 was 494 (March, 2023). While Michigan Gov. Gretchen Whitmer said in her 2024 State of the State address that we need more housing to decrease the cost to purchase/rent a home, building is actually declining.

According to a February 2024 Detroit Free Press article, some reasons for the decline in building new single-family dwelling units are the cost to build, modest statewide population growth and a shortage of skilled trade workers. Also, increased costs to build a home means those homes cost more to purchase, which is also proving to be difficult in today’s economy.

Cost of Water Continues to Rise in Southeast Michigan, Ratepayers Foot the Bill

Water rates have grown for most ratepayers across Southeastern Michigan for years, whether it be from the increases passed down to wholesale customers by the Great Lakes Water Authority and/or the increases passed down from the municipalities to their citizens. These increases, in short, are based on the servicing of debt and the cost of delivering clean and safe drinking to residents across the region. As Michigan’s infrastructure continues to age, ratepayers and government entities will have to foot the bill to ensure that the necessary replacement and improvements continue.

In Southeastern Michigan there are 86 communities that are part of the Great Lakes Water Authority (GLWA) system. This system officially went online in 2016 after approval by Wayne, Oakland and Macomb counties in 2014 with the promise to provide improved services to the former Detroit Water and Sewer Department (DWSD) customers. The approval of the GLWA meant that all former DWSD wholesale customers (who are local government entities) became customers of the GLWA. The exception was the City of Detroit, which continued to own and operate its own system.  At the time of the creation of this regional authority there was a promise that annual overall budget increases would be 4 percent or less. As the GLWA passes on more water and sewer (we are not exploring sewer system charges in this post) increases for one local city or townships could go above 4 percent. However, according to the annual budgets produced by the GLWA, water system increases for suburban wholesale customers have not exceeded 4 percent, except in Fiscal Year 2017.

As the chart below shows, Fiscal Year 2017 had an overall increase of 4.3 percent.  Fiscal Year 2018 had an increase of 2 percent. Fiscal Year 2019 had the lowest increase for water charges for suburban wholesale member partners at 1.7 percent. For Fiscal Year 2024 the increase is 2.75 percent.

These percentage increases are passed down to the communities who purchase wholesale water from the GLWA, but water rate increases for these communities’ ratepayers are not always in line with the increases passed down by the GLWA. Rather, municipalities typically add their own operating costs on top of GLWA’s charges, according to the GLWA’s explanation of charges. These rates are known as the retail rates and are ultimately what customers pay.

At the same time, the GLWA may pass down standard rate increases to their wholesale customers  as costs per million cubic feet (mcf) based on who the customer is. These rates vary according to whether the wholesale customer has the ability to store water, how many ratepayers there are in a community  and the distance and elevation of the community from where the water is being transported from. There is no standard commodity rate for individual communities. It is important to note that the GLWA charges at an mcf rate while local communities charge at centrum cubic feet (ccf) rate[1]. While this does not allow for a simple comparison between the two rates (wholesale v ratepayer), there is an even deeper explanation on why there is not an apples-to-apples comparison between wholesale and ratepayer rates.

As noted, retail water rates are set by elected boards, often at the recommendation of their finance and public works departments. These recommended rates are based on the wholesale prices communities pay to GLWA, the investment needed to maintain and update the city or township’s infrastructure, debt service and their staffing levels. Water rates can also be lower but fees such as a “water meter fee,” which is a fixed cost on the bill, can account for a “lower” water rate (in appearance only). Also, the elected bodies may choose not to pass on increased costs from the GLWA or for infrastructure investment.

Because of how retail water rates are set, which vary from how wholesale rates are set, there is not an easy comparison between these either. GLWA’s wholesale rates are based on the fixed monthly charge and the wholesale commodity rate charged to communities. These charges are determined by the amount of water usage by each community as well as the distance and elevation of that community from the water source (it takes more energy to pump water uphill or long distances than it does to pump it to areas near the source). The local water storage capacity of each member community can affect the rates they pay because when a community can store water they don’t need to purchase it at higher, or “peak,” rates.

The GLWA adopted wholesale rates for communities can be found here. While a comprehensive of list of retail rates does not exist, the above chart shows a comparison of retail water rates amongst several communities in South Oakland County (data provided by the South Oakland County Water Association), along with the rates for Allen Park, Washington Township and Detroit. The chart shows that Detroit, which sets its own rate, has the lowest water rate of the communities. Detroit purchases its water from the Detroit Water and Sewer Department, and not GLWA. The City of Southfield has the highest retail water rate at $5.79 per ccf. Washington Township, which is 36 miles from Detroit, has a retail water rate of $3.24 per ccfs.

The elements of water rates are important to understand as the public debates the potential creation of a statewide affordability fund for low-income residents to access. It should also be noted that part of the revenue the GLWA earns from its customers goes into the Water Residential Assistance Program (WRAP). With this program,0.5 percent of the GLWA’s revenues go into an Income Based Plan that provides bill credits to eligible households. This plan makes it so that the water bill does not exceed 3 percent of household income for up to two years (or ongoing for households with senior citizens and persons with permanent disabilities).

This post demonstrates not only how complicated our water system is, but also the way in which rates are determined. The true cost of delivering clean water is only a piece of the equation, and that varies from one community to the next. Even with such fluctuation in what ratepayers/taxpayers pay for their water, one thing is certain, rates are only increasing. Water infrastructure is aging, the cost of electricity (used to help deliver water) is increasing, staffing costs are increasing and clean water remains a necessity for life. With such factors coming into play in determining already complicated retail water rates, a reliable source of assistance for those in need can, and should be, a constant. For this reason we support the proposed State of Michigan plan to add a $2 flat fee on all our monthly bills to help the poor pay for their water. No one should have to go without water.

[1] A centrum cubic feet equals 100 cubic feet or approximately 748 gallons of water.