Montana House Bill 259 and Bozeman’s Affordability Crisis

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Last Friday (March 26th) The Montana Senate passed House Bill 259, which bans county and municipal governments from requiring developers to pay a fee that would go towards low-income housing. The bill is primarily a reaction to a Bozeman city ordinance requiring that for any development of more than 10 homes, at least 10% of them must be priced “affordably.” Once 259 is signed by Governor Gianforte, that ordinance will be outlawed. The House and Senate votes have been party-line, with nearly all Republicans voting for the bill (their ostensible support of “local control” notwithstanding) and Democrats voting against.

Bozeman is in the  midst of a full-blown housing affordability crisis. The city was already a popular destination for people fleeing even more expensive big cities, particularly from California. But in the last year, according to Bloomberg City Lab, rent for a two-bedroom apartment has increased by a staggering 58% in just the last year, and housing prices have increased by roughly 50%. This has been driven by a couple factors: first, housing prices have surged nationwide during the COVID-19 pandemic, as interest rates have been at rock-bottom levels. Second, housing demand in Bozeman specifically has been driven by the increasing availability of remote work. If you can now work from anywhere, beautiful Montana is hard to beat!

But being a desirable place to live comes with tough choices. Roughly speaking, there are three ways to deal with surging housing demand: build housing away from the city center and into the surrounding empty space (or “sprawl”), build more housing units within the existing city area (building for “density” or “infilling”), or simply do not adequately increase housing supply and let prices skyrocket. Economists typically favor density, as it is more efficient and environmentally friendlier than sprawl. But American cities have mainly chosen the last option of limiting housing supply in the last several decades, through a combination of zoning laws and other restrictions. Hence there are affordability crises across the country, though typically in cities larger than Bozeman.

Bozeman has seen a healthy combination of all three strategies as its population has grown, but the increasing sprawl into the Gallatin valley and occasional new apartment building downtown has not been adequate to check housing prices. And another factor is the type of new housing that gets built. When zoning restrictions are relaxed and developers are free to build what maximizes their profits, what they often prefer to build is luxury condos or suburban McMansions, which doesn’t exactly address the affordability issue. This is the problem Bozeman city officials were trying to solve with the ordinance. The idea is to allow developers to build more housing but make sure at least a small part of it is affordable enough for an average Montana household.

But even this minor inconvenience to developers is too much for the state legislature, and the city’s hands are tied to do much of anything about the affordability crisis. According to the Bloomberg City Lab article, “Bozeman’s cost of living is more than 20% higher than the national average, while the median income is about 20% lower.” On its current trajectory, Bozeman will mainly be a haven for the wealthy, while the city’s service workers will be forced to commute in from greater distances, at great environmental cost.

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About Author

Brock Smith is an Assistant Professor in the Department of Agricultural Economics and Economics at Montana State University. He received a PhD from UC-Davis in 2013 and spent three years as a Research Fellow at the Oxford Centre for Analysis of Resource Rich Economies. He mainly studies effects of oil and natural gas shocks in both an international and domestic US setting.

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