Building permits down in Missoula as housing pressure grows
(Missoula Current) While interest rates are slowly ticking down, the number of building permits issued in Missoula in Fiscal Year 2024 remains sluggish when compared to years past, even as housing remains in demand across the city.
In Fiscal Year 2023, the city issued 125 building permits that yielded 400 units and was valued at more than $62.5 million. But this fiscal year, which ends in June, the city has issued only 93 building permits valued at just $24.2 million.
“With interest rates the way they are, plus Covid, we've certainly seen a slowdown in overall permitting in the city from last (fiscal) year,” said Walter Banzinger, deputy director of Development Services. “We haven't seen as many multi-dwelling apartment units come online this (fiscal) year.”
According to building reports kept by the city, officials issued 96 building permits for housing last fiscal year, which rendered 467 housing units. But this fiscal year, the city has issued only 69 permits to create 111 housing units.
While the slowdown has many causes, Banzinger attributed it to recently high interest rates, which topped 7.79% in October. The average 30-year fixed mortgage has since fallen to around 6.67%, according to Freddie Mac.
“We still do have a housing need, and there's still pressure,” Banzinger said. “Some of the rental rates are coming down. But over all, we do still have a housing crunch and a housing issue here in the city. Missoula is a desirable place to live, but there's still not a lot out there in the housing market.”
The demand for housing continues to place upward pressure on housing prices, which ended 2023 with a median-priced home costing $539,500 in Missoula. That's up from $520,000 in 2022 and $450,000 in 2021.
Last year, the Missoula City Council approved a number of new subdivisions, including Icon Apartments, which will include 614 residential units on 44 acres. It also approved West End Homes, which will include 260 residential units, and Sapphire Place, which includes 300 units.
But the projects, along with other recently approved subdivisions, will take time to develop, and it may hinge on interest rates and the cost of building materials.
“If the interest rates continue their downward trend, you're going to see that pick up and see those lots go on the market to be developed into units,” said Banzinger. “But right now, we're seeing it trend downward. I expect that trend to remain somewhat steady.”
While permitting has slowed, home remodels have increased, according to the city. Last fiscal year, the city issued 246 permits for residential remodels valued at $7 million. So far this fiscal year, the city has issued 291 permits valued at $8.1 million.
That could also be related to the market, Banzinger said.
“When you see a slowdown in purchasing of new homes, it means people are tending to stay in their existing homes rather than upgrading to a new home,” he said. “That's probably a result of the economy as well as the interest rates that are keeping people from selling.”
Like the housing market, commercial permitting also has slowed in Missoula. Last fiscal year, the city issued 131 commercial permits valued at nearly $57 million. But this year, it has issued only 104 commercial permits valued at just $22 million.
Banzinger said the commercial building industry remains interested, but few have stepped to the table. Last year, a number of large commercial projects were rumored including the redevelopment of Missoulian property, the Riverfront Triangle and a large multi-family apartment project in the Midtown area.
So far, none have broken ground.
“We do have a few folks who have been talking to us about projects, but they haven't officially entered our review process yet,” said Banzinger. “There's certainly some kicking the tires going on out there.”