Figures around Missoula’s tight rental market and its correlation to pricing doesn’t have much meaning without a clear understanding of the consequences, housing and real estate officials said this week.
Missoula’s lack of inventory coupled with high demand is driving up prices, eating deeper into the wages of the city’s workforce. At the same time, it could also emerge as an economic drag, dissuading companies from moving to the city or worse, from staying here.
“It’s becoming and will become more of an economic development problem as companies come here and they need to house their employees,” said Matt Mellott. “They have fewer options, which means Missoula is less likely to land a new company or keep companies around.”
Mellott, of Sterling Commercial Real Estate in Missoula, joined members of the City Council and housing experts this week to break down the city’s rental market, its challenges and to discuss solutions.
Sterling has compiled data from various sources over the last five years to track the market closely, and that data has revealed some troubling signs. Among them, the current vacancy rate for apartments in Missoula has fallen to a scant .38%.
A healthy market ranges between 4% and 5%.
“Our rate is effectively a non-functioning market,” Mellott said. “You can barely do turnover at a vacancy rate that’s that low. Apartments are really hard to find in Missoula if you’re a renter.”
Missoula’s vacancy rate touched 5.9% in the First Quarter of 2019. By the First Quarter of 2020 it had fallen to 3.6%, then the pandemic hit. The vacancy rate ticked up slightly in the Second Quarter of 2020 amid uncertainty before dropping sharply to around 1%. It’s now fallen well below that.
“Rental rates have risen as a result,” Mellott said. “If you average them together, it’s about a 16% increase. If your income is not going up in a corresponding fashion, the squeeze on renters is pretty pronounced. When these things are out of whack, it starts to push people out of Missoula.”
The challenges surrounding Missoula’s rental market are no secret, and the data only punctuates what’s already known – Missoula has a housing problem.
Just four years ago, around 2018, the city was sitting on a surplus of new apartments, prompting landlords to offer incentives to attract tenants, from free rent to free cable.
The rapid turnaround has now left experts looking for a way to solve the problem and most agree, it’s a simple matter of supply and demand. Missoula’s population is growing at around 1.5% to 2% a year, and the housing market hasn’t kept pace.
“There’s plenty of interest from investors, developers and builders to do that,” Mellott said. “Part of it is a matter of getting projects through the pipeline, the regulatory process. I think it’s an achievable thing, but it will take effort from the public and private sector.”
Cheryl Cohen, executive director of Montana Housing at the Department of Commerce, said Missoula is mirroring the challenges experienced by some larger cities, including Seattle, where the workforce supported by large companies has created challenges on the housing front.
She said the state has discussed the housing issue.
“At the state, we’ve been having a lot of conversations around what it would take for private market developers to build more starter homes, smaller homes and higher density projects,” Cohen said. “Growth is coming, and it’s going to continue to come. Looking at the supply, to get more units created as quickly as possible is a good place to put the effort.”
Andrea Davis, executive director of the nonprofit Homeword, agreed that supply and demand is key to the solution. But she also believes it may go beyond that and play into economic and political issues, some of which are beyond the city’s control.
The Legislature hasn’t helped, she said.
“The real estate market is the most politicized I’ve ever seen it, and it brings together almost every sub-sector issue you can imagine – cutbacks in mental health, stagnant wage issues and so on,” Davis said. “It’s all these things that ultimately impact people’s ability to find and afford and keep a home. We need to find options, and proactive ways in which we’re going to try a different approach to delivery of homes on the ground.”
Still, Davis believes the city is on the right track when compared to other cities around the state.
“In the 20 years I’ve been involved in this sector and in this industry, I’ve never seen the City of Missoula take such proactive steps in addressing this issue, and it should not let up on the gas peddle,” she said. “We see variable commitment to this issue around the state. I urge you (City Council) to do what’s necessary to further the conversations around legislative changes.”