In one of the first projects of its kind in Missoula, the City Council on Wednesday approved a development agreement that requires permanently affordable homes in exchange for the vacation of public right of way.

The council approved elements of the project last year. In doing so, it placed several conditions upon the development and a requirement that 20% of its units be dedicated as permanently affordable housing.

The project is poised for South 4th Street East and Ronald Avenue on the edge of downtown Missoula and the University District.

Eran Pehan, director of the Office of Housing, Innovation and Community Development, said the units earmarked as affordable housing must be available for purchase to those earning 120% of the area median income.

Under that guideline, a studio will cost $215,000 while a 1 bedroom will cost around $243,000.

“The 120% figure is identified in the housing policy as part of our tiering system for housing incentives,” Pehan said. “It's nationally identified as a percentage that captures workforce. We have many in our community who make below that and many who make above that, but at 120%, we're really capturing that median household category.”

The developers, Papaw LLC and Cade LLC, could have built the project at a lesser density under existing zoning and therefore have avoided City Council oversight.

But last year, they asked the city to vacate a small piece of right of way to accommodate the building plans, which required City Council approval. In doing so, the city placed a number of restrictions on the project and required the developers to dedicate a portion of their project to affordable housing.

It's the first time the city has taken the approach.

“This agreement enables the city to test out an incentive structure providing the right-of-way vacation in return for the permanent affordability of these homes,” said Dakota James, also with the Office of Housing. “This project includes permanently affordable home ownership in a Missoula neighborhood that trends as one of Missoula's most expensive.”

As proposed, the project will include 28 condos that will sell for market rate and 13 condos reserved as market-rate rentals. It will also include 7 condos dedicated to affordable housing, or 120% of the area median income.

Lowering that 120% threshold would require deeper city subsidies, Pehan said.

“At 120%, we can help households that have the income to sustain a home but need a little push into the market by providing a product that's affordable and will be set as permanently affordable without the need to have that deep subsidy on the back end to propel them into housing,” she said. “This is a market we're really focused on.”

During last year's public hearings, several members of the council said the requirements placed upon the project by the city would artificially inflate housing costs across the entire market by subsidizing affordable units on the back of other buyers.

But the majority of the council said the conditions within the development agreement offered guarantees the city would not otherwise get if it denied the project completely.

Cole Bergquist, one of the project's developers, said the units dedicated to affordability will be sold on a first-come, first-serve basis to qualified buyers.

“For over a year now, we've have people request plans or reservations but we haven't allowed anyone to do anything yet because we want to give them a fair shot,” he said. “Anybody who is interested has gotten on our e-mail list. Everyone will have the same opportunity to put in their offer.”

Bergquist said the project is in the final bidding process with Dick Anderson Construction.

“It's an expensive place to develop. It's highly desirable,” he said. “There hasn't really been a complex like this with an affordable housing component in the University District.”