Unpredictability, time drive up housing costs, developers and city of Missoula agree

The last three housing projects to go before the Missoula City Council each faced a similar process – a protracted review and debate that cost time and money, resulting in a long list of regulatory requirements.

While the city continues to articulate the need for affordable housing, local developers believe that outside of subsidized housing, achieving affordability is growing increasingly difficult under a process they describe as long and unpredictable.

“Without any doubt in my mind, the biggest obstacle to affordable housing in the city of Missoula is the city of Missoula itself,” said John Brauer, a local real estate broker. “It’s that lack of certainty in the process that really compromises the affordability.”

Brauer, the former president of the Missoula Organization of Realtors, understands the challenges first hand. Two years ago, he attempted to develop roughly three acres off Reserve Street with workforce housing in mind.

His proposal sought to subdivide the property into 20 lots and develop 18 of them with single-family homes at a price point of $300,000. He entered the process proposing a townhome exemption development, something created by the state Legislature to streamline infill development in the city.

But Brauer eventually abandoned the TED process due to what he described as the city’s “unreasonable requests.” Approaching it through a more complex subdivision review didn’t fair much better, he said.

“This was a simple infill development fairly close to available services and a signalized corner,” he said. “It didn’t have to be this way.”

Brauer blamed a number of city requirements for driving up costs. Among them, the City Council required a greater setback, effectively shrinking the size of the property available for development. He said one city department also required him to dedicate five of the 20 lots as park space, or 25% of the property, though the city said was no more than 11%.

Bauer said allocation would have forced him to transfer the cost of the parkland dedication to the remaining 15 lots available for housing. That effectively drove up the price on the finished product, prompting him to abandon the development all together.

“There’s an opportunity loss on the builds, so now I’m going to absorb that, and there’s an opportunity loss on the ground sales that can occur there,” Brauer said. “I’ve lost profitability on two facets of the project. I abandoned it solely because of affordability.”

Such arguments have been voiced with the city before, and efforts are underway to address them. Last year, the city adopted the framework for a new housing policy that looks to increase the city’s housing stock across all incomes, and make it easier to build affordable housing.

Eran Pehan, center, director of Missoula’s Office of Housing and Community Development, agrees that unpredictability and time play a role in the city’s high housing costs, though other factors are also at play. (Missoula Current file photo)

Eran Pehan, director of the office of Housing and Community Development, said the city is looking at its regulations and working to reduce any barriers that hinder access to true affordability.

“We see predictability and time as the two most significant factors in that,” she said. “Predictability creates risk and that risk directly correlates to how much profit a developer needs to make on a project. As a city, we can’t control everything, but what we can do is make sure our policy and practices support that healthy regulatory environment.”

Among the regulations under review, Pehan said townhome exemption developments and urban subdivisions rise to the top, with efforts focused on reducing risk where possible and elimination unnecessary time lost to review.

The city also is looking at making regulatory changes to Title 20, the city’s land-use code. Areas of focus range from parking requirements to accessory dwelling units, and where the city can reduce risk within the regulatory framework.

“Most of these things are underway right now and will involve a lot of public process and working with stakeholders throughout the community,” Pehan said. “But I think we’ll see some changes come through this spring in terms of our Title 20 updates, and I think we’ll also see some of that work to our townhome exemptions and subdivisions come into play in the next six months.”

Pehan didn’t disagree with Brauer’s concern that city regulations may be an obstacle to affordable housing. But she also said Missoula isn’t alone in facing such challenges.

It is, she said, a national issue.

“I think the regulatory environment is impacting housing across the nation,” Pehan said. “This is not a Missoula problem. The current housing affordability and supply issues we’re facing are a national problem, and regulation is a part of that. But there are other factors as well. When we’re pointing to one specific cause, we’re ignoring the myriad of others than play into the equation.”

Other housing efforts have faced a similar challenge. A townhome project proposed for the South Hills spent more than a year stuck in City Council before it won approval. The governing body more recently required a condominium project in downtown Missoula to dedicate 20% of its units to affordable housing.

But the developers behind the later project said such a high threshold could sink the project. Even if it does move forward, the remaining units will subsidize the affordable units by selling at higher prices. That could artificially inflate the city’s real estate market even more, driving the cost of housing higher, experts have warned.

Brauer and others in the industry want the city to eliminate what they’ve described as an unpredictable City Council, whose demands change from year to year, depending on its composition.

“We have a process in place – we have subdivision regulations, zoning and land use planning,” said Brauer. “As long as we adhere to those as a developer, or even as a private citizen like myself trying to conduct a development – there shouldn’t be any other obstacles.”