Montana Cities are the Problem, and the Solution to Housing

City governments are the problem with Montana’s housing crisis, but they could be part of the solution

Montana’s major cities are experiencing a housing crisis rivaling those in Los Angeles and San Francisco. 

According to a report by the Montana Budget & Policy Center, median rent prices across the state grew by 26% between 1990 and 2018. Since the pandemic, this trend has accelerated exponentially, with the average sale price of a single-family home in Gallatin County spiking 24% to an median sales price of $690,000 last September while the average sale price in that community exceeded $1 million. Some of this can be attributed to the unprecedented demand for housing in rural states driven by those fleeing coastal cities like New York and Los Angeles during the pandemic. 

Yet, the problem of increasing housing prices is one that has persisted for decades before the pandemic trends hit Montana’s cities, just as it has in California’s. 

But why are rent prices as high in Montana as they are in California? As students learn in their high school economics classes, when the supply of an item stays the same or decreases (homes and apartments) while the quantity demanded increases (more renters and prospective homebuyers), this results in a shortage and therefore higher prices (rents and mortgages). 

Straying into college-level economics for a moment, one key feature of increased prices is that the change in pricing actually serves as a signal, telling the producers to produce more of the items in demand, and also to incentivize those who are not currently producing the item to enter the market and make up for the shortfall—after all, there are profits to be made! As the supply increases from production and new market entrants, the price falls to a new “equilibrium point.” This is how a market is supposed to function.

But when governments get in the way, markets aren’t able to function as they should, and housing becomes more limited and more expensive across the board.

One family in Malibu, California, learned this the hard way. Despite strong state laws incentivizing homeowners to build new housing, local governments often serve as a choke point on such efforts.  Thus, when Elizabeth Riddick tried to add a small, attached dwelling space to her home for her elderly and immunocompromised mother to live close to family while retaining her independence and receiving medical care, city officials rejected the proposal, citing noncompliance with the city’s idiosyncratic land use restrictions. Even though Ms. Riddick’s application sought to build the first affordable housing unit in the city in nearly a decade, Malibu officials were reluctant to bring their code into alignment with the state’s housing laws because doing so could set a precedent—one that would make the private production of housing less costly and more certain.

Unfortunately, families across the country all too frequently face similar obstacles from their local government, preventing them from building on their own private property.

Red tape, excessive fees, and arcane zoning schemes administered by local governments artificially cap the supply of housing. Builders, private property owners, and consumers would love to construct and convert housing to meet the growing needs and demands of the market, but government bureaucrats stand in their way at every turn. Between conservation easements, impact fees, government-sponsored utility monopolies, exclusionary zoning policies, occupancy permitting, and outright development moratoria, the laws and regulatory schemes administered by local governments appear tailor-made to choke the supply of housing. 

But more and more, governments are starting to recognize this supply-side problem and have removed obstacles to development and conversions of property.

California, for example, passed new laws over the past few years that make it easier to build accessory dwelling units (ADUs) on residential property and require local government bureaucrats to issue building permits as a matter of right in most instances, without imposing excessive fees and other obstacles on applicants. The City of Bozeman is considering a similar reform on a local level that would remove some restrictions on the right to convert or build an ADU, like square-footage limits, alley access, parking space allotments, and occupancy caps.

An ADU typically takes the form of a converted garage or a new structure attached to, or separate from, a primary home on a residential lot. These structures allow for organic expansion of the housing supply without converting the character or structure of existing neighborhoods. While relaxing restrictions on ADUs is not a silver bullet for the housing crisis, it is a helpful component of any plan to combat the problem.

Excessive impact fees, exclusionary zoning, and myriad other government-imposed obstacles to development continue to stifle the supply of housing in Montana and cities across the country. Until local or state governments begin relaxing these restrictions, residents of those cities and states will continue to feel the pinch of increased housing prices with precious little relief—particularly during times of heightened demand. If we value the ability of people to remain in their communities instead of being priced out of their own neighborhoods, and if we value access to affordable housing, then our governments should stop making it so difficult and expensive to build. In the words of the disembodied voice from the film Field of Dreams, “If [we] build it, they will come.” Let’s begin with that first part.

Daniel Woislaw is an attorney with the Pacific Legal Foundation.