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The Tollefson Apartments, which were under construction when this photo was taken in January 2018, comprise nine buildings and 330 apartments near the intersection of Mullan and Reserve in Missoula. The first phase of the project cost roughly $19.2 million.

Over the past 25 years, the rate in the growth of both housing prices and population in Montana has been faster than the national average. Missoula, in particular, saw an 8.2 percent increase in population growth from 2010 to 2016 (from 66,788 to 72,364) and a housing price growth of nearly 30 percent since 2010.

There’s a strong demand for housing in Missoula because, despite a construction boom, a lack of inventory is the most-often cited factor by builders, real estate experts and city officials as contributing to high home prices. For example, in all of 2017, only nine detached houses were listed for under $200,000 at a time when an estimated 6,000 people were looking to buy a house. According to Mike Haynes, the city’s development services director, only recently has the construction of housing in Missoula been keeping up — barely — with population growth.

“Missoula needs to add about 550 new residential units each year just to keep pace with our projected growth in population,” Haynes explained. “Thus, only in the last two years we have seen residential development at levels that should help ease pressure on the housing market in terms of supply and demand.”

The number of residential units permitted in Missoula jumped from 464 in 2015, to 775 in both 2016 and 2017.

Officials have been trying to find ways to make Missoula’s housing more affordable, and the issue is complex. Out-of-state homebuyers and retirees, and other people whose incomes come from something other than a job and who want to take advantage of Montana’s public lands and scenic beauty, play a small but not insignificant part.

Bryce Ward, an economist at the University of Montana’s Bureau of Business and Economic Research, has found that Montana’s high quality of life has made it a desirable place for people who don’t rely on the state’s economy for income, including out-of-state residents who own second homes here, as well as retirees and wealthy capitalists.

“Montana has a larger-than-typical share of second homes and the number of second homes has grown at a relatively fast rate,” Ward explained in a recent report on housing affordability.

Montana already had double the amount (5.8 percent) of seasonal, recreational or occasionally used homes as the United States overall (3 percent) in 1990. But in 2010, Montana’s share of second homes had grown to 8 percent while the national average had only risen to 3.5 percent. The gap has surely risen since then.

“I would not be surprised at all if it’s gone way up since 2010,” Ward said.

Because of relatively cheap consumer goods and housing that’s still less expensive than in places like Seattle or California, Montana appears to have attracted a lot of people who can choose where they live without worrying about having a job there, including telecommuters and retirees.

In Montana, 23 percent of personal income comes from dividends, interest and rent, which is the third-highest among all states and higher than the national average of 19 percent. Missoula, Gallatin and Flathead counties join 27 other Montana counties in ranking in the top 10 percent among all U.S. counties in the share of personal income from those sources.

The share of income from non-wage sources grew from 31 percent in 1990 to 36 percent in 2015, according to the IRS. In Missoula County, more than 40 percent of the total adjusted gross income comes from non-wage sources. That ranks in the top 10 percent nationwide.

That means that Montana’s housing market is affected by people who aren’t constrained by the relatively low wages here.

“Thus, Montana’s rising housing costs, in part, reflect Montana’s desirability to people whose income is not derived from the state’s economy,” Ward explained. “While demand from these footloose individuals provides clear evidence that Montana offers a great quality of life, it also makes housing in Montana more expensive, which can create problems. It means that housing cost increases may not be tethered to wage increases. This can make Montana untenable to certain workers and firms.”

Julie Gardner, a real estate agent in Missoula, said she estimates about 10 percent or fewer of her clients are coming to Missoula for lifestyle reasons or to buy a second home.

“The majority are people that are coming here for jobs or for school or family,” she said. “These are working families, and the sort of people starting in their jobs and moving here for entry- or mid-level jobs and then having trouble finding homes in their price range.”

Gardner said a lack of supply is the biggest reason why prices have climbed so much faster than wages here.

“We need more supply,” she said. “The biggest gap in supply is workforce housing, and housing close to town. People don’t want a 30-minute commute, and that can be hard to find. Homes that are affordable and close to town are selling really fast and getting multiple offers.”

Gardner said that construction costs are really high right now.

“It’s hard to build in that workforce housing price range right now,” she said. “The cost of labor, supplies and land, it’s all really expensive right now. And lots are hard to find. Or if a builder was going to take five acres and subdivide it, it’s really hard to do that and make the numbers work right now.”

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