Housing: Trouble in Paradise

Realtor Nancy Brook, left, shows a house to Heidi Blackmore as a potential investment property in Billings. (The Billings Gazette, Casey Page)
Realtor Nancy Brook, left, shows a house to Heidi Blackmore as a potential investment property in Billings. (The Billings Gazette, Casey Page)

Anyone who has spent any time engaging with Montana policymakers, listening to business leaders or just reading the news knows that housing tops the list of hot topics in our state. Availability of units, the pace of sales and, of course, land values all drive the conversation in just about every arena of public life right now. Housing may seem like a sudden crisis, and although housing has certainly drawn more press lately, a combination of socioeconomic factors have been converging for over a decade to produce Montana’s current market conditions. Consequently, no single solution will change the market conditions either, but the whole situation requires comprehensive analysis and presents opportunities for creative problem-solving.

How Did We Get Here?

At its simplest level, Montana’s housing market con​ditions starkly display the forces of supply and demand. Fast-growing demand and low inventory collide to produce higher prices. Between the 2010 census and the 2020 census, Montana’s overall population grew by 10%. New housing units however, increased by only 7%. The city of Missoula estimates a shortage of approximately 2,400 units just to meet current demand, let alone future growth. And most of us have seen the sharp rise in housing costs in Gallatin County, one of the fastest growing counties west of the Mississippi over the past decade. Average sale prices there are up around 30% over the past year to $700,000.

The Pew Charitable Trusts recently presented to the Montana Legislature’s financial modernization and risk analysis study committee on Montana’s housing market and had a simple but enlightening conclusion – the fundamental driver of housing prices is low housing supply. While that may seem like a no-brainer statement, boiling the housing issue down to the impact of supply and demand puts into acute focus both the causes and the potential solutions to housing needs in Montana.

On the demand side of the equation, the study identified both basic population growth in Montana and changing household sizes as the sources of increasing demand. Over the past several generations, the average American household has shrunk from 3.7 people in 1940 to 2.5 in 2020. This means that even if the population had zero net growth, housing needs would still increase with the same number of folks spread out over more households.

Changing household demographics in Montana must consider both changes in household size and the overall graying of Montana. The latest census data puts the average age in Montana at 39.8 years old, a solid two years over the average age nationwide and the highest average west of the Mississippi. Only 10 states have higher average ages, including retirement hot spots like Florida. Montana growing older factors into housing conditions as older Montanans live longer and chose to age in their own homes. This mean less movement out of existing homes that would otherwise be available for younger families.

Population growth, decreasing household size, an increasing number of households and a higher than average age have all gradually contributed to increasing demand for existing housing units. Then came COVID-19 and the corresponding outsized impacts on housing in Montana.

The COVID-19 Complications

Changing household demographics and a growing population have built up the housing market over the past decade, to say nothing of the impacts of low mortgage interest rates and other economic factors. However, the past two years introduced a large and unforeseen wrench into Montana’s housing market that had an outsized impact – COVID-19.

All of a sudden, folks who harbored dreams of leaving the city rat race and living out their Western fantasies had an opportunity to work from anywhere as employees moved to long-term work-from-home arrangements – and some large employers even closed their central locations entirely. With average home sale prices in states like California topping $800,000, liquidating a suburban home in a large metro area and plunking down top dollar for a dream home in one of Montana’s desirable destination communities wasn’t out of reach. Typically, less attractive markets like Billings and Great Falls became more affordable for new residents.

Montana’s recreation industry has grown markedly over the years, so much so that Gov. Steve Bullock’s administration established an Office of Outdoor Recreation in the governor’s office during his last term. A recreation economy depends on out-of-state residents with significant disposable income – those wanting to spend their vacation time and money to enjoy all Montana has to offer, a draw Montana has built with great success over the years.

Montanans like to joke about how nonresidents are welcome to spend their money and then go home. However, when the Californians, Texans and Midwesterners pull up roots en masse, Montanans can’t be shocked when they want to live where they vacation. One could write a book on the intersection of promoting a recreation-based economy, the sudden disruption of COVID-19, and an already hard-pressed housing market. But suffice it to say, analysis of Montana’s current housing circumstances and development of solutions must take that all into account.

So, What Do We Do?

Homebuilders talk about the “three Ls” as drivers in the housing market – lumber, labor and lots. While that quip perhaps oversimplifies the equation, the solution to the disconnect between available housing units and housing demand in Montana, particularly in Montana’s most desirable and fastest-growing areas, must consider materials and cost, human capital, and land use regulations. The good news is Montana’s housing conversations do include all of these factors as policymakers challenge themselves to come up with comprehensive solutions.

Montana as an individual state can do little about materials prices. However, the Montana Legislature and stakeholder groups have already had extensive conversations on land use regulations at both the state and local level. These discussions are to determine where we can improve the review and permitting process to ease new housing construction, while maintaining and protecting public health, safety and welfare. Additionally, state government, education institutions, and even local business development agencies and trade associations are working to encourage participation in the building trades as a path to a prosperous long-term career.

It will take all this work and more to address housing needs in Montana, but a willingness to think creatively and comprehensively may just be the key to resolving trouble in paradise.