UM economists struggle to explain Montana’s skyrocketing home prices
(Montana Free Press) Housing costs have risen across Montana in recent decades, to the point where residents are feeling the pinch between wages and their rent or mortgage payments, say economists with the Montana Bureau of Business and Economic Research.
The unanswered question is: Why?
“Housing the people is one of the most basic services, one of the most basic things we can expect our economy to provide,” BBER Director Patrick Barkey told crowds in Helena and Missoula this week during the bureau’s 2019 Montana Economic Outlook Seminar tour.
“This is a daunting challenge, the challenge of housing affordability,” Barkey said.
Home prices have more than doubled since 2000 in five Montana counties, BBER says, and more than two-thirds of Montana counties with available data have seen prices rise by at least 70 percent. Montana’s average wages, for comparison, are up by about 74 percent since 2000, according to data from the U.S. Bureau of Economic Analysis.
Montana home prices began to rise markedly in the 1990s and then accelerated in the 2000s, Barkey said, inflating at an average of 7.4 percent a year until being taken down a notch by the 2008 recession, according to data from the Federal Housing Finance Agency. Since the end of the recession, Montana home prices have rebounded, rising at an average rate of 4.1 percent annually.
Those higher housing costs ripple through the economy, Barkey said, squeezing consumer budgets, complicating employer recruiting efforts, and encouraging sprawl as Montanans seek homes on cheaper land on the outskirts of cities.
Basic economic theory would predict the market to move in response: Higher housing prices should lure developers and contractors to build more homes until prices swing into alignment with local wages. But that doesn’t seem to be happening in many parts of Montana.
“There’s something going on in housing markets that’s driven by policy, either willingly or unwillingly, that’s pushing housing prices higher,” Barkey said.
It isn’t clear specifically what is driving the trend, but Barkey detailed two potential explanations: First, it may be that hot housing markets in places like Bozeman and Missoula are simply the inevitable consequence of those cities being desirable places to live — so desirable that they attract out-of-state money.
Second, Barkey said, local building regulations — think sidewalk requirements, impact fees or density restrictions — could, in combination, be driving prices up by making it more difficult and more expensive for developers to bring new homes to market.
If it’s a demand-side problem, Barkey said, one solution would be to subsidize people who have trouble covering their housing costs. Federal rental assistance and mortgage programs, for example, already help some people with housing costs. Multiple bills introduced this year at the Montana Legislature propose using state money to help developers who build housing projects for lower-income Montanans.
On the other hand, if rising housing costs are largely a regulatory issue, Barkey suggested that state government could step in to force comparatively high-regulation cities like Bozeman to roll back their development requirements. The state of California, for example, is suing the city of Huntington Beach over development regulations it says leaves too little land available for comparatively affordable apartment-style housing.
“It’s a national challenge with a local flavor,” Barkey said. “It’s not going away.”
This story was originally published by Montana Free Press as part of the Long Streets Project. This work is supported in part by a grant from the Greater Montana Foundation, which encourages communication on issues, trends, and values of importance to Montanans. Reach Lead Reporter Eric Dietrich at email@example.com.
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