Affordable Housing

Construction workers lay plywood on the roof of a new affordable housing development on Feb. 19, 2021, off Tschache Lane. The structure is part of a push by local nonprofits to build 230 affordable homes, a child care center and medical clinic behind Lowe's.

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Bozeman officials say a bill in the Montana Legislature that would nix a key part of the city’s affordable housing ordinance would limit the city’s ability to respond to the housing crisis.

Bozeman’s affordable housing ordinance, which requires 10% of developments of more than 10 homes be sold at affordable prices, has produced 17 homes and has been the subject of complaint from some in the building industry who feel it drives up the cost of other homes and burdens developers. House Bill 259 would prohibit local governments from requiring developers to pay a fee that would go toward providing homes at specified prices or for people in specific income levels or from dedicating property for that housing.

It takes aim at “inclusionary zoning," which is the basis for Bozeman's affordable housing ordinance.

Bozeman officials say a bill that would dismantle the ordinance is just another hit to the city’s affordable housing efforts.

“It’s just so unfortunate that the Legislature is taking away a tool that helps us to be able to build affordable housing,” Mayor Cyndy Andrus said. “I think that they continue to preempt us from using a lot of the tools that people across the country and other states are able to use and we are not … we know what's happening in our community and we should be able to make decisions around what is best for our community.”

Majority Leader Rep. Sue Vinton, R-Billings, who is in the building industry herself, introduced the bill in January. It passed the House this week, and is now headed to the Senate.

During a committee hearing and floor debates on Vinton’s bill, supporters largely argued that inclusionary zoning unduly burdens developers, leads to cost shifting to other homes and stymies home building in general. Opponents argued that it represents an overreach of state power on local control and that decisions about housing should be left to local officials.

Bozeman's ordinance took effect in 2018 and requires developments of more than 10 homes to include 10% affordably priced homes. Developers can also choose to pay cash in lieu of building the affordable units.

Some criticized Bozeman’s policy for only producing 17 homes since 2018. But advocates argue that more affordable units are on the way as a result.

“It’s a tool that is just beginning to bear fruit and to have it outlawed is incredibly disappointing,” said Bozeman Deputy Mayor Terry Cunningham.

Cunningham also noted it has generated a hefty amount of cash-in-lieu funds. City funds helped with the development of 24 affordable homes in the Willow Springs Townhome development and with the construction of over 200 affordable units at a development under construction in Bozeman.

The money has also been used by the Human Resources Development Council for shelter funds and to preserve existing affordable units, said the council’s associate director Tracy Meneuz.

Still, several developers and building industry officials said that inclusionary zoning has an overall negative impact on the housing market by pushing up the cost of the homes around it.

Bozeman developer Eugene Graf, who owns EG Construction, said in a subdivision he is working on of 40 homes, the four affordable homes are pushing the costs for the other units up by about $25,000 to $30,000.

“It just prices out more people in the valley,” said Linda Revenaugh with Southwest Montana Building Industry Association, who testified in support of the bill.

Some developments who have gone through the affordable housing process have been able to make it work. Bozeman developer Greg Stratton was the first to go through the process, building eight affordably-priced homes in the Lakes at Valley West subdivision.

Stratton said they built the affordable homes to the price point they were planning to sell them for, though he did acknowledge cost increases in recent years could make that difficult to do now.

The ordinance’s focus on penalizing developers rather than offer incentives is a flaw, said Noel Seeburg, a real estate agent who is on Bozeman’s Community Affordable Housing Advisory Board.

Seeburg said he doesn’t see inclusionary zoning as the best way to go about building more affordable housing.

“It ends up costing more money to develop a house with inclusionary zoning,” Seeburg said. “If they’re going to put affordable housing in there that money is going to be passed off somewhere. They’re not just going to do something for free.”

Cunningham acknowledged an inclusionary zoning policy does come with some cost shifting. However, Cunningham argued that the astronomical increase in housing prices in Bozeman — up $110,000 in median sales prices this January from a year ago — can’t solely be attributed to inclusionary zoning.

“Right now the average home sales price is far in excess of construction inflation, far in excess of labor increases, far in excess of materials increases, and so the market rate of housing is a supply and demand function as well as a materials function,” Cunningham said.

Graf and others in the building industry say inclusionary zoning puts the onus of fixing the affordable housing crisis onto developers, while they feel it should be a community-wide solution.

During debate on the bill on the House floor, Vinton noted the bill doesn’t prevent local governments from using incentives for affordable housing or pursuing other solutions.

Incentives could include speeding up the development approval process, said Steve Snezek, executive director of the Montana Building Industry Association, or reducing impact fees cities charge developers.

There’s always room for incentives, Bozeman City Manager Jeff Mihelich said, but he argued they aren’t enough to ensure affordable housing is built. The minimum, Mihelich said, should remain the required 10% affordable homes.

Even those who support inclusionary zoning said Bozeman’s ordinance needs improvement. Suggestions include expanding its application to all housing types or adjusting the cash-in-lieu fees.

“This ordinance is something that has been from the beginning kind of a work in progress, and we are going to continue to work at it,” Andrus said. “If we are not able to mandate what gets built through this ordinance than we're going to have to look at incentives, and I’m not sure ... that you can get more affordable housing by just offering incentives.”

The city is looking at other options, too, including asking voters to approve a bond that would raise funds for affordable housing. But several people said the city’s hands are nearly all the way tied when it comes to addressing the issue.

Unlike in other states, cities in Montana are prohibited from exacting real estate transfer fees, Menuez said, which are often used for affordable housing initiatives.

The path Bozeman can take to address housing costs is narrow, Cunningham said, and removing inclusionary zoning will be another blow.

“I liken it to trying to escape from an affordable housing island and every escape route has a lock on it and when you get to the gate and it says ‘sorry this gate is locked courtesy of the state,'” Cunningham said. “We are already taking a look at the affordable housing ordinance and inclusionary zoning to see what's working and what's not, and this legislation would essentially strip us of that opportunity to do the adjustments.”

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Nora Shelly can be reached at nshelly@dailychronicle.com or 406-582-2607.

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