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Glenn Oppel - January 17, 2008
Montana Association of REALTORS®
Economic Growth and Housing Affordability
Economic Growth and Housing Affordability
In spite of national trends and constant predictions about the housing bubble, economic output from Montana’s housing sector remains steady as we start the New Year.
The resiliency of the housing sector is good news for Montana’s economy. This economic engine will continue to inject a few billion dollars into the state economy and hundreds of millions of dollars into tax coffers.
From the REALTOR® viewpoint, however, this doesn’t mean that the engine doesn’t face significant uphill climbs down the road. Chief among these challenges are increasing regulations, restrictions, and fees that make it more difficult and costly to build new housing for a growing economy.
Could these challenges eventually kill the goose that laid the golden egg?
In order to address this question, one must consider the close correlation between housing supply and the capacity for local economies to expand. It all comes down to the economic reality that businesses need an ample supply of skilled labor to grow. With Montana’s low unemployment, many growing businesses must attract labor from other markets around the region, nation, and even abroad. A major factor in determining a business’s ability to attract labor is housing affordability.
A 2005 study from Harvard University’s Joint Center for Housing Studies supports this correlation. The study found that an individual bases a decision to relocate for new employment by comparing the relative wage in each area to the cost of moving. Because housing is a large share of any household budget, the level of housing prices has a substantial impact on the real value of wages across geographic areas. As a result, areas with high housing prices relative to wages will attract fewer migrants. The study concluded that, in the long run, local area employment is strongly tied to the supply of housing.
The nature and extent of local land use regulations has a significant impact on local housing markets. The U.S. Department of Housing and Urban Development has recognized that regulations and fees drive up housing prices by restricting supply and adding artificial costs, such as impact fees. A HUD study explained that, and I quote, “Millions of Americans are being priced out of buying or renting the kind of housing they otherwise could afford were it not for a web of government regulations.” HUD believes that removing excessive regulatory barriers to new housing construction could reduce development costs by up to 35 percent.
This is an economic fact that local decisions makers in high-growth areas of Montana must consider carefully as they seek to manage growth in their communities; especially in light of the fact that many of Montana’s high-growth areas are seeing a growing gap between income and housing prices.
Take Missoula for example.
The Missoula Organization of REALTORS® has been tracking this gap with its local Housing Affordability Index.
The index has found that over the past five years median income has increased 4 percent annually, while the median-priced home has increased almost 10 percent annually.
Over the past three years, a median-priced home in Missoula County increased from $185,000 to $219,000, a 20 percent increase. This means that the median family income needed to purchase a median priced home increased from $55,500 in 2005 to $62,200 in 2007. Median family income in Missoula County currently stands at about $54,500, which is enough to purchase a home for $193,000.
Missoula County is not alone – many other high-growth areas in Montana are facing similar housing affordability challenges.
As we look ahead at the prospects for Montana’s economy, we see delicate resiliency. In spite of steady increases in housing prices, our growing local businesses have been able to attract enough skilled labor during recent periods of economic expansion. But many business leaders have expressed their concern that housing prices may reach a point that discourages labor migration, making it more difficult for businesses to expand.
Thankfully, a growing number of policymakers, business people, and citizens are beginning to recognize that the housing sector will play a critical role in Montana’s economic future. Nonetheless, it may be some time before we see a general realization that regulations and fees can add substantial costs to housing, making it harder and harder to house our growing workforce.
Will the regulatory environment faced by Montana’s housing sector kill the goose that laid the golden egg? That remains to be seen.
On behalf of our nearly 5,000 members that earn a living by helping Montanans achieve the American Dream of homeownership, we wish you a year of prosperity. For the Montana Association of REALTORS®, this is Glenn Oppel.
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| Northwest Area Foundation Grant Funds News Reports on Poverty Issues |
Through 2008 the Montana Public Radio News Department will be presenting regular feature stories about issues of poverty in Montana. This project is made possible with a two-year, $78,500 grant from the Northwest Area Foundation. The funding will enable Montana Public Radio to add a half-time reporter to its staff for the duration of the project, as well as cover costs for field recording equipment and travel throughout western and central Montana. News Director Sally Mauk says, “I’m excited about the project and the opportunity to get our news staff out to many Montana communities to report on such an important and timely topic.”
The Northwest Area Foundation approached Montana Public Radio with this opportunity for funding coverage of poverty issues, after beginning successful projects with Minnesota Public Radio and Seattle’s KUOW. The Northwest Area Foundation’s mission is to help communities in an eight-state region (including Montana) reduce poverty. www.nwaf.org.
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