Martin Kidston

(Missoula Current) A program looking to create workforce housing in Missoula under new state guidelines is hoping to launch a pilot phase this year, where city officials will test the recommendations against real-world projects and make adjustments down the road.

An internal working group has met eight times in recent months to explore ways to incentivize the construction of workforce housing under a 2021 state law that added such projects to the definition of infrastructure.

That was further clarified in 2023 when language was added to define workforce housing as serving families that earn between 60% and 140% of the area median income.

Area Median Income in 2023 in Missoula County is around $86,000 for a family of four, according to U.S. Housing and Urban Development. The median home price in Missoula currently stands at $529,000, which remains out of reach for many working residents.

“The largest gap in housing supply in Missoula County are those homes priced between $300,000 and $450,000,” said Annie Gorski, deputy director of the Missoula Redevelopment Agency. “According to the Missoula Organization of Realtors, 97% of homes sold in Missoula County in 2022 cost more than a family earning Missoula's median income could afford.”

Over the last few decades, MRA has invested more than $10 million to complete nearly 2,000 housing units across Missoula, including 850 income-restricted homes. The agency currently has $7 million invested in projects either committed or planned, which will create more than 500 additional housing units.

But with changes in state law defining infrastructure, MRA and the city see new opportunities. Without incentives, developers say workforce housing is difficult to make pencil financially given high interest rates, the cost of land and the cost of materials.

“We can work through these guidelines on some real projects in the next year or year-and-a-half, then come back to report on how that's going, along with any recommended modifications, based on what we learned,” said Gorski.

Draft recommendations will be tested

The recommended goals look to increase the workforce housing supply in the city's urban renewable districts, including both rent and for sale. They also aim to encourage more mixed-income projects and infill development, and seek to leverage other incentives if they're available.

While the program is likely to evolve, current challenges include today's high interest rates and the gap it creates when compared to the true cost of a project, along with the subsidies sought by the city to make it affordable as workforce housing.

But those behind the project believe tax increment financing could be a useful tool in addressing some of those challenges.

Gorski said that includes bridging funding gaps that come with developing income-restricted units. Tax increment could also be used to purchase property to accommodate workforce housing, cover soft costs associated with construction, or offer an interest-rate reduction on a construction loan.

“This is something that continues to come up as interest rates continue to increase,” said Gorski. “I think this will be a backbone component of the program. Right now, interest rates, the financing environment and the lending criteria that banks are requiring now are creating some challenges to projects who are watching this.”

The current recommendations also make changes to the tax increment financing program in general by requiring any project that receives financing and doesn't include workforce housing to make a contribution to the city's Affordable Housing Trust Fund.

Certain projects are excluded from that and other questions remain, including whether such rules should include commercial projects that create jobs but don't include housing. Long-term affordability also remains in play.

“All our work is negotiable because we're working toward the goal of more affordable and income-restricted housing in our portfolio,” said Emily Harris-Shears, the city's housing policy specialist. “Rather than take a rigid approach and risk the developer walking away, we're open to working with them to meet both their needs and to uphold our commitment to public benefit.”

Those behind the recommendations have described the pilot project as a big step forward, but admit it may also come with certain risks that some developers won't be willing to take.

The City Council will review the current recommendations and MRA is expected to take action in September and begin administering several pilot projects.

“We'll try and get some pilot projects up in the guidelines so we can test them,” Gorski said.