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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. Missoula officials are holding their ground against the idea that developers should be forced to build affordable housing units.

The housing affordability crisis hitting Montana’s urban centers is becoming a statewide problem, a group of Missoula lawmakers and housing policy experts told a state legislative committee on Thursday.

“It’s really not just a Bozeman or Missoula issue anymore,” said state Rep. Adam Hertz, a Republican representing House District 96 west of Missoula. “We really have an affordable housing crisis statewide. We’re ranking high nationally on our lack of housing affordability. It’s really blown past a crisis in some of our cities, and other communities are about to get there.”

Hertz was speaking to the 65th Legislature’s Local Government Interim Committee, which is looking at potential ways to streamline the state’s land use regulations, urban subdivision review processes and financial incentives to help address the lack of affordable inventory.

A dearth of supply is most often cited as the No. 1 reason why housing prices have outpaced wage growth for many years in much of Montana. Hertz was joined by Eran Pehan, director of Missoula’s Office of Housing and Community Development; Missoula Organization of Realtors first vice president DJ Smith, and Sheila Rice of the Montana Housing Coalition.

“In Missoula in 2012, 45 percent of our housing stock was priced under $200,000,” Smith told the committee. “Now today, that same housing stock, only 16 percent is under $200,000. So we’re seeing a decrease in houses under $200,000 but an increase of interest in that same area."

He said the seller's market has created a lot of affordability issues.

"It’s a sad conversation when I talk to individuals that serve the community and want to buy a home," Smith continued. "They’re looking for a three-bed, two-bath home in Missoula for under $200,000, and I tell them you have to look in Alberton or Stevensville. Those are a half-hour drive, which just doesn’t make sense for a small family or young family.”

He said that 47 percent of Missoula renters spend more than 30 percent of their income on housing, which means they are “housing cost burdened” by federal standards.

“If someone makes 100 percent of the area median income in Missoula, they can afford a house that costs $220,000,” he explained. “But our median home price is $268,000. There’s a stark difference between what an average home is selling for and what people can attain.”

Rice urged the committee to consider legislation that would use state money to finance a state tax credit that builders could use to take advantage of federal dollars to build low-income housing.

“A very small amount of state funding could result in construction of many affordable housing units,” Rice said. “I want to emphasize that Montana has virtually no funding for housing. Housing brings jobs. Immediate jobs for construction and long-term management and maintenance jobs. And home is where jobs go to sleep at night. You have to have a place to house your workers.”

Rice said 16 states are poised to take advantage of certain federal tax credits using state money, but Montana is not one of them.

“There’s 4 percent tax credits that are not competitive, but we just need a little layer of state financing,” she said. “A state tax credit brings private equity into developing housing that our lowest income families can afford.”

Don Sterhan, president of Mountain Plains Equity Group, a Billings organization that finances low-income housing, told the committee that they should look at a state tax credit for housing not as a subsidy but as an investment.

“Some people say that if there’s such high demand, then the private sector will figure it out,” he said. “If there’s a need, then some entrepreneur will find a solution. It’s the laissez-faire system. I guess they go home at night and sleep good thinking that’s a good answer.

"But it’s a quality of life issue. How far are we going to go to present an opportunity for quality, affordable housing for our communities? I see it as an investment, not an expense.”

Pehan said there have been more permits approved for residential development in Missoula in the last year than there were in the previous decade, but the vacancy rate is still extremely low at 3 percent.

“We probably can’t quickly build our way out, and we have a limited land supply and a relatively severe shortage in construction labor, too,” she said. “With the rise in cost of development, we’re getting neighborhood pushback as we redefine what the average single-family home looks like. It requires density. It’s no longer a detached home.”

She said in Missoula, her office is focusing on how to work smarter instead of harder on the problem.

“How can we create more predictability in our regulations and make things happen faster, because time is money,” she said. 

"Our deeply subsidized housing is incredibly under supplied. For every 100 units that are in demand, there are 52 available, so many are forced to be homeless or in substandard units.”

Pehan said that Missoula’s economy is suffering because skilled workers are leaving or never coming at all due to the lack of housing.

“We see outmigration, and that has devastating impacts,” she said. “We’re losing young college graduates and people who are starting careers because they can’t afford to start a family.”

She said the biggest cost drivers are land prices, lack of supply of affordable housing and rising construction costs.

Tim Davis, the water quality division administrator at the Department of Environmental Quality, said his office is trying to speed up and streamline the subdivision review process to reduce redundancy and still allow cities to enforce environmental laws.

Hertz said his goal is to streamline the process and not to discourage development.

The committee agreed to study the issue further in a July meeting, and Hertz said he will consider bringing forward legislation.

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