This article originally appeared in Crain’s Detroit Business September 19, 2025.

For much of the 20th century, the Midwest was the engine of American manufacturing. Cities and small towns alike prospered from factories that produced cars, appliances, steel, and furniture.

Manufacturing is quite a bit different today than it used to be in Michigan. And prior to manufacturing, Michigan was a farming state. A fur state. A flakes states. A chemical state. Michigan has been a pioneer in telegraphs, canals, railroads and ships.

But economies ebb and flow. The above industries are still around — many are still prominent — but they’ve all changed. A key lesson in the history of Michigan is that the government doesn’t do a very good job of knowing what’s next for industry. More often than not, they guess wrong, trying to hold onto the past or figure out the “next big thing.” In the process, they harm taxpayers as well as their states and towns.

When the government doesn’t get too involved in directing resources, areas of the state will adjust on their own. Across the Midwest, yesterday’s manufacturing hubs are shifting toward new, growing industries.

Pittsburgh steel jobs have collapsed, but jobs in health care, finance and robotics have surged. The Heartland isn’t Silicon Valley (yet?), but tech jobs have been moving to the Midwest, and Columbus, Ohio, has built a thriving sector.

In Michigan, communities like Kalamazoo and Traverse City have shifted toward craft brewing, wine, and lakefront tourism. Even smaller towns are finding success by re-purposing historic factories as boutique hotels, art spaces, or event centers.

Much of this is happening organically. To the extent the government has gotten involved, it pursues contradictory policies. The state runs a “Pure Michigan” advertising campaign to promote tourism heavily — spending more than $450 million on this program. But the economic returns are abysmal.

Traverse City, Holland, New Buffalo, Mackinaw City and other vacation areas across Michigan thrive from tourism — but they have zoning and housing policies that limit this future. Each of these towns essentially bans short-term rentals almost everywhere. At the same time, they have zoning codes that severely limit the ability to add new housing, especially apartments and multi-family homes.

The result is that the growth of tourism is limited to set business districts, many of which are almost entirely built up. For this industry to thrive, hotels cannot be the only option, especially in smaller markets.

Flexible housing policy is critical to economic transition. Allowing more homes to be built helps increase population and keep prices in check. When they embrace fair short-term rental laws, local governments let people use their homes productively. Homeowners can supplement their income while providing visitors with the wide selection of lodging they increasingly demand.

The economic effect of short-term rentals — like Airbnb and VRBO — is positive, leading to increased spending and tax revenue. In West Michigan, most short-term rentals are provided for a few months of the year by homeowners who earn $10,000 to $50,000. Banning short-term rentals harms restaurants, retailers and service businesses.

By modernizing zoning laws to allow more housing types — duplexes, townhomes, apartments above storefronts — and welcoming regulated short-term rentals, Midwestern towns can capture the full value of their tourism rebound. This creates income for families and tax revenue for cities, while ensuring that visitors have places to stay and workers have places to live.

Michigan will continue to have factories, farms and flakes. But with smart housing policy, tourism can also help communities revive and thrive.

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