FACING THE CHALLENGE OF AFFORDABLE HOUSING: Working Toward Solutions in Montana.

• Author: Barkey, Patrick M.
• Position: Cover story

Housing in general, and home ownership in particular, have always been visible, tangible evidence of economic success. Simply put, economic systems and economic leadership that cannot adequately house their populations are judged as failures.

Perhaps that is why the escalating cost of housing in recent years, both in absolute terms and relative to income, has inspired calls to action at the local, state and national level. Witness the efforts to reform Seattle's homeowner dominated neighborhood councils, the recently failed measure in California to override local building restrictions along transit corridors and the bill sponsored by Sen. Elizabeth Warren to spend $50 billion annually to build affordable multifamily housing in urban areas.

There are plenty of policies in support of housing and home ownership in place already, and evidence of their effectiveness is unconvincing. Despite spending $120 billion per year on tax subsidies to subsidize home ownership through the mortgage-interest deduction and enormous interventions in mortgage markets, with government-supported enterprises like Fannie Mae and Freddie Mac, ownership rates in the United States are lower than many countries that do none of these things. When it comes to affordability, those policies arguably make the situation worse by super-fueling demand for larger and more expensive homes.

But those policies have been in place in one form or another since the 1930s. The acceleration in home prices that has led to housing cost issues today began in the 1990s and really kicked into gear during the first seven years of the previous decade, when home prices in Montana increased by 7.4 percent per year for eight consecutive years, mirroring the national trend (Figure 1). While often dismissed as a bubble --or an unsustainably high price driven by speculation and not the more fundamental forces of supply and demand the sustained price growth that has resumed after the bust suggests otherwise.

The focus of research on housing price growth has been on policies at the local level. Housing regulations are easy to talk about, but harder to measure. The variants are endless, but commonly include (Gyourko and Malloy, 2014):

* Infrastructure requirements

* Height restrictions

* Caps on numbers of units

* Population growth limits

* Urban boundaries or green zones

* Restrictions on rezoning

* Super majority, voter or multiple jurisdictional approvals

* Minimum lot size requirements

* Delays in...