HOUSING TROUBLE IN PARADISE: Housing Needs Demand Creative Solutions.

• Author: St. Lawrence, Abigail
• Position: MONTANA ECONOMIC REPORT

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 conditions 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...