Montana’s Home Affordability Dilemma

By Matthew Frank, 8-19-08

	Caption: A photo taken from A Walking Tour of the Costs Associated with Development in Missoula Urban Area (PDF), presented Tuesday by developer Nick Kaufman.

Maps propped up in Missoula City Council chambers Tuesday showed three Montanas. The first was Montana in 1996. The few counties highlighted in red—including Missoula County—indicated where the average home price outpaced the average household income. The second, Montana in 2006, showed much more red, almost all of the western third of the state. The third map, projecting 2020, was entirely red, save three of Montana’s most remote counties.

As Nancy Leifer of the Montana Board of Housing put it, the maps make one thing clear: “From Eureka to Ekalaka, from Sanders County to Sydney, from Shelby down to Red Lodge, (Montana communities) are struggling to house their people.”

Leifer was speaking as part of a discussion of affordable housing in Missoula and across the state, put on by Missoula ADAPT Inc. (Missoula Area Development and Preservation Team), a new and diverse group of folks in the housing sector, from developers to lenders to planners, working to find affordable housing solutions in the face of rising land, material and infrastructure costs.

In Missoula, those costs combined with low wages and steady growth anchored by an influx of out-of-staters has made affordable housing one of the city’s most highly charged issues. (Affordability generally means that for any given income you’re spending no more than 30 percent on housing.)

What’s causing the divergence of income projections and cost projections? Leifer cites increased competition for housing: in 2006, 30 percent of homes were purchased by out-of-staters.

Plus, building costs are becoming more globalized—and much more expensive.

Another major challenge, Leifer said, is the state’s water and sewer infrastructure that was built primarily between 1900 and 1920. “Keeping the systems up to snuff is an expensive proposition,” she said.

All of which makes the case for thinking hard about patterns of settlement. “If you have a community these days that’s spread out all over the place you’re looking at huge energy costs,” Leifer said.

A few more tid-bits from Leifer:

• There are 21,000 units of subsidized housing in Montana, 4,650 of which are on year-to-year contracts, meaning owners can opt out at any time and convert units into, say, condos.
  
  
• There are about 50,000 manufactured/mobile home units in the state. About half were built before 1976, when HUD adopted federal health and safety regulations for mobile homes, and need to be updated. Rising land values are making mobile home courts less viable. “When we lose those mobile home courts, we’re losing affordable housing that can’t easily be replaced.”
  
  
• Leifer also said affordability projections appear even gloomier because, as Missoula’s economy becomes more rooted in the service sector, overall wages will actually decline. In addition, as the population ages, the number of households will increase at a faster clip than the actual population.

Developer Nick Kaufman of the WGM Group also presented, detailing the difficulties Missoula developers face in providing affordable housing. (Download a PDF of presentation here.)

The subdivision review process is lengthy, complicated and expensive, Kaufman said, and the neighborhood review process can be particularly cumbersome and may add “unnecessary costs and be contrary to the Growth Policy goals and objectives to accommodate community growth.”

The overall affect on affordable housing, he said, is this: “Losing density, upsizing homes, providing additional open space, common area and common area maintenance, etc., add to the cost of the project. The increased costs are forward-shifted to the homebuyer.”

Kaufman stated that infrastructure costs (sewer, water, streets, curbs, sidewalks, storm drainage, landscaping and engineering) have jumped from $14,592 per lot in 1996 to $24,288 per lot in 2006.

More numbers from Kaufman:

• Missoula’s average lot price (under one acre in the urban area) was $14,044 in 1990. In 2006 it was $95,000.
  
  
• The subdivision review process costs about $3,000 per lot.
  
  
• The total average cost to build on a lot jumped from $104,013 in 1996 to $170,776 in 2006, a 64 percent increase.

The reality is, Kaufman said in his closing comments, is that as developers’ fees increase, they have a “lower propensity” to provide jobs and affordable housing.

Finally, Sheila Lund of First Security Bank offered the latest on the rapid changes taking place on the lending front and how it affects housing affordability. Her handout stated:

The opportunities that many potential home buyers had previously are more than likely gone at this point. We’ve seen programs that are no longer available like stated income/stated assests, combo or piggyback loans, 100% or (higher). Credit score requirements have gotten extremely tight, loan vales have been lowered and borrowers must have a down payment.

So that’s the latest from Missoula’s housing affordability discussion: Montana’s wages are low, the price of housing is driven up in part by newcomers, developers say their hands are tied by rising costs—and, to boot, it’s now tougher to get loans.

These dilemmas and the others inherent to growth are portrayed quite well by this cartoon Kaufman included in his presentation (click it for a more readable version).