People can’t afford to live in Montana.
Businesses can’t find qualified workers as those workers can’t find affordable places to live.
Businesses can’t expand because of this.
Jobs aren’t created. Income isn’t spent in the local economy. The state loses tax revenue.
It’s a huge problem, and elected officials know it.
“Local businesses would like to expand,” Bozeman City Commissioner Terry Cunningham told the legislature this week, “but their ability to attract qualified employees is being hindered by housing affordability.”
Houses in Bozeman aren’t affordable for a variety of reasons, but a big one is that just 1% of the city’s housing rentals are currently vacant.
And it’s not just Bozeman.
Cities large and small across the state are grappling with an affordable housing crisis.
Many of the elected officials and policymakers in those cities know of the problem, and can cite statistics telling you how bad it is.
But few seem to have any ideas on how to solve it once and for all.
I’m not an expert on the issue, but I thought I’d do some research into what other cities have done to solve their affordable housing problems.
Here are 10 ideas I’ve come up with based on that research that might work in Montana.
#1 Use TIF Money
Whitefish is having its own affordable housing crisis, and they are trying two different approaches to solve it.
Back in October their city council voted to amend their downtown master plan so that an empty lot they use to store plowed snow can be used for multi-family housing in the future instead of just a parking lot.
What they did was change the land use designation so that empty lot can now fit into the Tax Increment Finance (TIF) boundaries and TIF money can be spent for things like “soil testing to aide in decisions about how the lot might be developed.”
Here in Missoula there are many areas on the Northside that could fit similar criteria. The Riverfront Triangle would have been an ideal spot for this as well, but we gave that area to the rich, out-of-state hotel developers to play with instead.
Whitefish is also developing a 137-townhome subdivision, with 10 of those homes set aside for affordable housing. That means they’ll have a price tag of $289,000.
Again, this might sound like a lot but it’s a lot lower than the average Whitefish home price of $669,000.
Whitefish has a tool in its toolbox that most other Montana cities don’t - the local option sales tax we call a resort tax.
#2 Use Real Estate Trust Funds
Resort tax money would go a long way in helping Montana solve the affordable housing crisis by funding housing trust funds.
Whitefish currently does this, using money from their local option sales tax. Other cities use realty transfer taxes to do this.
How it works is that the tax money from a sale - or the resort tax, in Whitefish’s case - is put into the trust, and then given out to people for down payments on houses or condos.
Typically for every $1 in public money that’s spent, $7 in private developer money comes about.
Many don’t like this idea because it seems like a free handout to poorer people, but if we don’t try this option the housing crisis could get worse and even the developers might suffer as demand for housing goes down as prices become too high.
Big Sky is another of our resort communities that has had success with using their local option sales tax to fund affordable housing programs.
Last year they used $1.9 million of their resort tax revenues to fund the Big Sky Community Housing Trust.
52 units were subsidized using that money, meaning two-bedroom condos in that section of the development will sell for $280,000 and a studio $120,000.
The average price for a home in Big Sky is currently $3.1 million.
#3 Allow Realty Transfer Taxes
We saw how resort communities can use their local option sales taxes to help solve the affordable housing crisis.
But what about larger Montana cities...cities which aren’t allowed to have a sales tax?
For them, there’s another option called realty transfer taxes.
Sadly, Montana won’t allow them, and this means we can’t set up real estate trust funds.
We’re prohibited by law from having realty transfer taxes.
The reason is simple - in 2010 nearly 260,000 Montanans voted yes on CI-105, which was called the Montana New Property Tax Elimination Act.
The constitutional initiative passed with 72% of the vote, preventing taxes when real estate property changed hands.
Interestingly, 85% of the complaints the Secretary of State’s Office received that year in regard to signature gathering revolved around the 48,000 signatures that came in to certify that initiative.
We also know that the Chicago-based National Association of Realtors spent $600,000 getting the initiative on the ballot, or about 98% of total funding. The Montana Association of Realtors favored the initiative, as did the Montana Chamber of Commerce, Bankers Association, Stockgrowers, and legislator turned lobbyist Dennis Iverson, now of the Montana Group.
The reason we’re rehashing all of this is because the passage of CI-105 effectively prevents the formation of housing trust funds, which rely on real estate transfer taxes for most of their revenue.
Perhaps the legislature needs to talk about undoing this with a law. If that can’t work, then a public information campaign needs to start so that Montanans can be informed of the problem and a solution can come about.
#4 Remove Local Government Stumbling Blocks
Building new affordable housing units is a challenge, and for many reasons.
Without government subsidies, most developers simply choose to build homes that will sell for the most money, not well-below market rates.
But local governments also put out their own stumbling blocks. These include “issues of land-use, permitting, and other regulatory requirements that unnecessarily raise the cost of developing new affordable rental homes, often acting as an insurmountable barrier to their production.”
Here in Missoula, zoning has been a big issue when it comes to the lack of affordable housing. Typically we have too many areas that aren’t zoned for multi-family homes, and oftentimes the city council won’t vote to rezone so we can make inroads on the problem.
One member of the Missoula Housing Coalition also says renters need more support resources, including “reducing fees for applications and creating a streamlined credit score and background check process.
#5 Employer Tax Credits
Here in Missoula we know that employers are very troubled by the lack of affordable housing, something that’s making it harder for them to recruit qualified workers and expand their businesses.
Thankfully, employers could help with the affordable housing problem as well, though it’d likely take a lot of state support for that to happen.
How it could work is that the legislature puts incentive programs in place that reward employers with tax credits when they cover a portion of their employees’ rents or mortgages.
The benefit is twofold: businesses and corporations could see less of a financial burden from taxes and their employees have a chance to live closer to work while having a better quality of life.
Businesses also attract a better quality worker with these types of programs.
#6 Increasing Amenities
One federal study suggested that increasing the available supply of affordable housing does very little to ease the rental burden for cities. They found that adding 5% more housing to the most expensive neighborhoods would only cause rents to decrease by 0.5%.
The reason for this was that people like certain amenities in their neighborhoods, like shopping options, good schools, and easy access to public transportation. They’ll pay higher rental and home prices to get those things, negating much of the effect of increasing the available housing supply in other parts of the city.
An option to overcome this is to improve those favored amenities in other parts of the city. This could be done by expanding access to public transportation in those areas, as well as building more schools and commercial shopping centers.
The latter two are longer-term solutions, but we know that doing those things could “make these neighborhoods more competitive with more expensive, downtown neighborhoods and so could relieve some price pressure in downtown neighborhoods through a substitution effect.”
Here in Missoula we’ll really need to think about these options, as our downtown is going to experience a huge growth in more affluent citizens because of the recent hotel construction there.
This kind of example creates a “cascading gentrification engine,” where people with more money are outbidding those without. This will drive up rental prices in the downtown area, driving lower-income people out of the area and perhaps out of the city altogether. The burden on our bedroom communities will be immense.
#7 Decades-Long Price Controls
Denver put a program into place recently called LIVE Denver, which aims to help solve their affordable housing crisis.
One of the things they did there was to change the city requirement that says developers need to keep their buildings affordable for 20 years if they want to get city subsidies during construction. Affordable for Denver means that the price won’t increase more than 7% each year.
Now Denver requires 60 years.
Nonprofit developers opposed this, as they’d be hit hard, but the city council voted to push it through. I personally think that this is too much and that most developers will flee Denver for other areas to build. A similar measure in Oregon will have the same results.
One option that’s sort of a middle ground is to work with developers on this idea.
For instance, if a developer is building a 30-unit subdivision and wants local government assistance in the form of tax breaks or credits or whatnot, then perhaps they need to set aside 10-20% of those units as affordable for 5 or 10 years.
I think a lot of developers might be willing to work with something like that, as they know we have a housing crisis. When you force something like 60 years down their throat, however, I just don’t think you’re being reasonable from a business standpoint.
#8 The Tiny Home Solution
Bozeman is trying out the ‘tiny home’ solution. Currently on 24th and Beall Street there are two “Humble Homes,” which are two tiny homes situated on one normal lot. They’re 300 and 600 square feet and sell for $140,000 and $174,000, respectively.
It might sound like a lot for a small home, but the average home price in Bozeman right now is $432,000.
Currently in the legislature there’s legislation to make it easier to get tax money to build tiny homes to put a dent in the affordable housing crisis.
#9 Legislative Supports
The Montana Legislature needs to get its act together, and a good place to start is undoing the damage they did years ago.
We already discussed how they could help us get realty transfer taxes.
Another option is to spend state money on housing assistance, which we currently don’t do.
Oh, we have the Elderly Homeowner or Renter Credit state-sponsored affordable rental housing program, but it’s a joke.
Despite offering a tax credit of up to $1,000 for lower-income seniors who rent, the program has not been funded since it was created in 1999.
This is an example of the legislature slapping low-income people in the face.
If the legislature decides it doesn’t want to impose realty transfer taxes - which a GOP-controlled body typically won’t - then they should at least consider allowing interest from state-held funds to be used in its place, and even unclaimed fees, such as those from document recording. Local 911 taxes could be another option.
#10 Raise Wages
Well wouldn’t you know it? I got up to nine ideas before I ran out.
So I decided to come up with #10 on my own, which is to raise wages.
I don’t for one second think that this is going to happen.
The legislature is controlled by the GOP and they’re not going to mandate any kind of minimum wage hike that will actually make a difference in people’s lives.
Businesses around the state aren’t going to raise wages, or if they do, they certainly won’t be enough for people to buy homes all of a sudden.
But if you don’t want to see the government meddling in the private sector via subsidies and trust funds and other ways to make housing affordable, then something else will have to give.
Raising wages is one option, and it’d go a long way to solving many of our crises, not just affordable housing.
I hope these ideas give some of our elected officials and policymakers some ideas, as well as those that will run for the various city councils around the state this year.
Montana has a huge problem with affordable housing, and it means a lot of our kids have to move out of the state when they graduate from college.
Many businesses aren’t locating to Montana because they know they couldn’t find decent living conditions for their workers.
The state loses tax revenue because of this, but worse, it puts us into a kind of an ‘economic depression’ compared to other states that don’t have such an affordable housing crisis.
Businesses and people go to those states; they don’t come here.
The good news is that we can solve this problem.
Let’s do it sooner rather than later.