Having lived in Bozeman for a little over a year, one of the most frequent topics of conversation are the soaring property and rental prices. This is a problem the city has been grappling with for a number of years now, without making much headway in the face of persistent population growth. According to a recent article in the Bozeman Daily Chronicle, about half of renters in Bozeman are paying more than 30 percent of their income on rent, a threshold commonly used to denote overly burdensome housing costs. The city is now hiring for a newly created position called “Affordable Housing Director”, whose sole focus will be increasing the supply of low-to-medium income housing.
I thought this would be a good time to write a few thoughts on this topic and give a quick overview of how economists think about the problem of housing supply. If you have a rapidly growing, desirable place to live like Bozeman (and indeed, Bozeman was recently ranked the #10 best place to live by Money Magazine), the way I like to think about it is that the city has three choices: higher density, increasing sprawl, or high rents. That is, you can build more high-density housing in the city center or other places where housing already exists, you can extend the city boundaries with lower-density housing in previously unoccupied land, or you can take steps to restrict growth, which will have the side effect of soaring rents. The reality will be some combination of the three, as we are currently seeing in Bozeman.
Economists, sticklers for efficiency that we are, tend to favor density. More people living closer to each other and their places of work reduces transportation costs, especially in bigger cities where daily traffic jams are especially costly in time and money. Short commutes also significantly benefit the environment by lowering emissions. Reduced sprawl also requires less infrastructure investment in the electrical grid and water systems. Finally, some studies have found that density causes higher productivity and innovation.
But admittedly, economists can tend to be blinkered in our relentless pursuit of efficiency. Achieving high density typically involves building up, which would ruin many people’s views of the Bridger Mountains. Parking space becomes an issue, which is the main sticking point for the controversial Black Olive apartment building proposal near downtown Bozeman. Further, many people simply enjoy having a big yard and quiet neighborhoods, and would not be happy if everyone was packed into maximally efficient urban supercenters. Finally, home ownership is usually a much more viable option in the suburbs, rather than downtown areas where units are either too expensive or parts of a large apartment complex available for rent only. Of course, the downsides of sprawl are the aforementioned commuting costs, and also the degradation of natural habitats, which would be a particular shame for the beautiful surrounding area of Bozeman if it got out of hand.
One may conclude from all this that restricting growth is the way to go. A seminal example of this is Boulder, Colorado, a beautiful college town which experienced breakneck growth in the 1970s (it is not hard to see similarities to between Bozeman now and Boulder then) and took several unprecedented steps to explicitly restrict population growth to under 2% per year. It established a “green belt” of publicly owned land surrounding the city, making further sprawl impossible. It has strict building height limits and several other building restrictions. Depending on the criteria, the low-growth policy has been a success, as Boulder has maintained a spectacular quality of life. Of course, this has come at a cost (for new home buyers and renters anyway): the average house price in Boulder has recently surpassed $1 million, rivalling the most expensive markets in the country.
The hard decisions faced by Bozeman city planners are a microcosm of a country-wide phenomenon, with most large cities facing an affordability crisis exacerbated by zoning laws and other building restrictions. What makes this problem so economically insidious is that these places are where much of the job and productivity growth in the country is, but a large portion of the population cannot afford to move to where these opportunities are. A recent paper by economists at the Universities of Chicago and Berkeley estimate that this type of labor mis-allocation caused by housing restrictions has lowered US GDP growth by a galling 50% since 1969.
There are no easy answers for how to manage growth and many trade-offs to consider for Bozeman and the country as a whole. This will continue to be a matter of charged debate for the foreseeable future.