Not entirely unique. UVA has a similar academic profile and like Michigan, it leans heavily on OOS tuition to compensate for almost vanishingly small legislative appropriations.
Average OOS family incomes at Michigan skew high in part because until recently they didn’t provide much FA to OOS students (while meeting full need for in-state students), making it cost-prohibitive for many middle-class OOS families, let alone low-income OOS applicants… That’s likely to change somewhat after their recent successful $5 billion capital campaign which will allow them to provide more generous FA to OOS students, with a stated goal eventually to meet full need for all students…
“Lower” is, of course, relative. They’re reporting middle 50% ACT of 32-35 for their 2019 entering class. That’s the same as, e.g., Princeton. A 32 on the ACT is 96th percentile nationally, and given that over half the entering class is in-state, mathematically it must mean that over half the in-state freshmen are at or above that level. That still leaves a quarter of the class below a 32, but you can’t assume they’re all in-state. It likely includes a fair number of recruited athletes and many students admitted to schools like Art & Design or Music, Theatre & Dance that are less concerned with academic stats than with evidence of talent and accomplishment relevant to those fields. That said, it probably is true that an in-state applicant with, say, a 30 on their ACT (93rd percentile) has a better shot at admission than at OOS applicant at the same level—but the in-state applicant at that level is no shoo-in, either.
It’s true that the state of Michigan’s high school-aged population is declining, as it is in many Northeastern and Midwestern states. But Michigan high schools still graduate around 100,000 students annually. Only about 10,000 of them apply to the University of Michigan. Far more apply to Michigan State which is about 85% in-state and gets roughly 35,000 applicants, the bulk of whom must be in-state. So it’s not as if there’s an absolute shortage of in-state college-bound students. As I said before, there’s just a lot of self-selection. Most Michigan residents know (and are told by their HS counselors) that they’re not likely to be admitted to Michigan unless they have pretty outstanding credentials—and not just GPA and test scores, because they also weigh essays and other holistic factors pretty heavily. So most don’t even bother to apply. And some just prefer MSU or some other school for various reasons.