City looks to cap townhome exemptions in favor of full subdivision review

A state tool intended to create new housing in a timely manner wasn't intended to permit development “at any scale,” city staff told members of the Missoula City Council on Wednesday.

As a result, Development Services has recommended a cap on so-called Townhome Exemption Developments at 15 to 30 units, depending on zoning. That could include a “bonus” if it accompanies a subdivision review.

The proposal, approved by the City Council, was opposed by a number of builders who believe the cap will increase the cost of housing and make inefficient use of land. It could also leave housing opportunities “on the table,” even when zoning calls for greater density, they said.

But advocates believe the cap will enable the city to move smaller infill projects through the process in a timely manner while requiring larger projects to undergo a standard subdivision review.

That would eliminate the slow proliferation of larger subdivisions that now come disguised as townhome exemptions, something the city said it has struggled with in recent years.

“We're trying to balance this objective to provide more supply while also recognizing that we have to look out for community impacts,” said Jeremy Keene, interim director of Development Services. “At some point, projects reach a size where the scale and complexity requires an additional level of review.”

While some believe the cap represents an arbitrary number, Keene said it hits the sweet spot and represents a compromise. Projects larger than 20 units tend to require more roads, infrastructure and utility corridors, along with traffic studies.

And that requires a greater level of scrutiny, Keene said.

“Once you get above 20, we'd like to see that go through subdivision (review),” Keene said. “Whether it works well or not, subdivision is the tool in our regulations that allow us to deal with all those other issues. If we can take a minor subdivision and consider a TED at the same time, we think that can be an efficient process.”

The City Council in May passed an interim ordinance limiting TEDs to give the city time to fix what some viewed as an abuse of the process. The interim ordinance expires in October and Development Services has been working for months to amend the regulations before that date arrives.

But members of the council have wide-ranging views on the issue, and consensus hasn't come quickly. Wednesday's talk on caps and bonuses drew both praise and criticism, though most agreed that predictability is needed for the development community and a city facing a housing crunch.

“We really need to create predictability for folks in the audience and others in the development community,” said council member Jordan Hess. “We have a lot of work to do with subdivision (review), but we need to do the best we can in advance of this interim (TED) ordinance expiring.”

A number of builders opposed the changes, saying they're largely unneeded and could limit the number of new units needed to satisfy the local housing market.

Ryan Frey, owner of Saddle Mountain Construction, said the ordinance would limit the number of units he could place on a property he plans to develop, one that's already zoned for high-density housing.

Frey and others said the city's subdivision review process is essentially broken, which has forced developers to seek townhome exemptions instead. By capping the units allowed under townhome exemptions, housing projects across the city could “grind to a halt.”

“The builders are a little worried,” said Frey. “The subdivision review process is 18 months to two years, but in two years, the market can completely change. The builders fear this is going to pretty much grind to a halt any of the larger subdivisions in town until subdivision review is fixed.”

Others agreed, saying the measure will drive up housing costs by capping TED projects and forcing developers to undergo lengthy reviews.

Since 2011, the city has approved just seven subdivisions compared to 59 TED projects. Of those TED projects, nine provided 60 percent of the housing. In comparison, 50 of the TED projects have been smaller than 10 units, accounting for just 40 percent of new housing.

The larger projects are needed to keep pace with Missoula's housing demand, they said.

“I feel Missoula wouldn't have had the number of houses or units built in the last two years if we didn't have TED,” said Gene Mostad, president of Mostad Construction. “We wouldn't have gotten through the subdivision process. With the TED process, it made things easier to get going.”

Missoula Mayor John Engen said the city is working to align both its TED and subdivision regulations. The measure under consideration by the City Council would provide a guide until larger issues are resolved, including the infrastructure needed to guide “orderly development.”

“I'm very interested in continuing those conversations with our partners who are putting this (housing) on the ground,” Engen said. “The development community has a big stake in this, and frankly we need housing production all day.

“The cap seems reasonable in the interim, but I think that cap can change, provided that we can address some other issues around whether existing infrastructure and adjacency allow for more density.”