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Researcher: Rent-to-income ratios correlate to homelessness rates in Montana

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Adrian Paradise and Tiffany Nugent Paradise stand in front of their trailer home in Skyview Trailer Park in this Missoulian file photo from 2018. Nearly all the residents had left after being evicted by the park's owner to make way for an apartment complex.

A high rent-to-income ratio is a greater predictor of homelessness rates in a community than other factors like drug use or mental health, according to a housing expert who spoke to a Montana legislative committee this week.

“Rents are the strongest predictor of homelessness,” explained Alex Horowitz of the nonprofit Pew Charitable Trusts. “It’s markets that are experiencing rent growth that see high levels of homelessness. Specifically in Montana, we see the 14th-highest homelessness rate in the country and the fourth-largest increase (from 2019 to 2020).”

The average rent in Missoula increased by over 27% — from $862 to $1,098 — from early 2019 to the spring of 2021, according to Sterling Commercial Real Estate Advisors.

In 2020, 14.5 out of every 10,000 Montana residents experienced homelessness, a 13.9% increase from 2019 and a 34.3% increase from 2007, according to Horowitz.

When the rent-to-income ratio in a community is about 22%, the homelessness rate is three times lower than in communities where the ratio is about 45%, Horowitz said, citing U.S. Census data.

He didn't have the specific ratio for Missoula or Montana, but he noted that rents are far outpacing wages in the state.

“And you can see inflection points where homelessness starts rising faster when rent-to-income ratios get to a certain level,” he said. “Homelessness is often viewed as a problem related to characteristics of individuals or communities. Levels of, for example, addiction or mental health issues in an area are not effective predictors of the homelessness rate in a way that rent-to-income ratios are.”

The share of severely cost-burdened households in the U.S. — households that pay between a third and a half of their income to housing — has doubled since 1960.

“The current time period is an aberration,” Horowitz said. “Housing costs used to be much lower relative to income.”

The problem, of course, is that there is an enormous housing shortage in Montana.

“What it really comes down to is there has been an increase in population that has outstripped the increase in homes,” Horowitz explained.

Montana saw its population increase by 10% from 2010 to 2020, according to government data. In that same time, there’s only been a 7% increase in the number of housing units.

“That causes prices to go up and rents to go up,” he said.

And the problem has worsened since 2020, he noted, pointing to evidence that there was a large migration of people in expensive cities to medium-sized markets like Boise and Missoula.

Another part of the problem is that the average number of people per household in the U.S. has fallen from 3.7 in 1940 to 2.5 in 2020. That means more housing units are needed for every 10,000 people. What’s more, many of the land-use regulations adopted in this country were put in place between 1920 and 1940 when household sizes were much larger.

“63% of households in the U.S. contain either one or two people,” Horowitz said. “That is a big change from how things were when current land-use regulations were adopted in the first half of the century.”

Single-family zoning, for example, restricts the number of housing units in large swaths of cities and towns across Montana because it means only single family homes can be built on large lots.

Horowitz noted that places with few regulations on building, like Tokyo, Houston and Florida, have lower rates of homelessness than places with lots of regulations like California and New York.

"In states that have relatively liberal building regulations, they tend to have homeless rates 4-5 times lower than states that have the most restrictive housing regulations," he said.

Strict housing laws also hamper the economy because businesses can't keep or attract workers, he explained.

“Housing specialists and economists agree that strict zoning regulations increase costs and reduce growth because fewer homes are built,” Horowitz said. “There is lower GDP in states and markets that have had strict zoning regulations like large minimum lot sizes, single-unit per lot requirements and strict parking and floor-area requirements.”

Horowitz was speaking to the Financial Modernization and Risk Analysis Study Committee.

Sen. Janet Ellis, the vice-chair of the committee, asked Horowitz how much of a role short-term rentals play in the affordable housing crisis in Montana.

"In Montana I've seen that as a focus," she said. "Big Sky has a program (to mitigate how many short-term rentals displace long-term rentals) and Whitefish has something they're looking at."

Horowitz responded by saying that some states and jurisdictions across the country have taken steps to restrict short-term rentals. The most common form, he noted, is a law requiring any housing rental to be for at least 30 days.

"Evidence suggests taking steps for those does slow the growth of rent (prices) by a couple of percentage points," he said.

Those places, however, did also see about a 16% reduction in the number of Accessory Dwelling Units produced because people saw less incentive to build, he said.

Heather O'Loughlin, co-director of the Montana Budget and Policy Center, asked Horowitz if communities that have adopted inclusionary zoning have seen lower housing prices. Inclusionary zoning is a system that requires builders to include a portion of income-restricted affordable housing in most new housing developments.

Horowitz said it's a hard policy to study because it's implemented in many different ways across the country.

"On net, most research has found inclusionary zoning has had relatively little impact on the housing market overall because the number of affordable units built tend to be very low relative to the overall housing supply," he said. "We also see some reduction in building because builders don't build the housing they might otherwise."

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