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Study says more multi-family zoning would ease Montana housing crunch

by Eric Dietrich Montana Free Press
| March 5, 2022 12:00 AM

A new study published by a Republican-aligned Montana think tank argues that zoning reform intended to make it easier to build duplex, triplex and fourplex-style homes in urban neighborhoods represents a key strategy for Montana as the state grapples with a housing crunch driven by lagging home construction and surging in-migration.

The report, from the Helena-based Frontier Institute, says current zoning regulations in many Montana cities make it unnecessarily difficult to redevelop urban lots with buildings that can provide homes for multiple households, or to convert existing structures into multifamily units. 

Because multifamily structures like duplexes use land and building materials more efficiently than detached single-family homes, their advocates argue that style of development represents a prime opportunity to create relatively affordable housing in increasingly pricey neighborhoods within walking distance of universities and downtown commercial districts. 

“In effect, Exclusionary Single-Family Zoning tells residents who can’t afford traditional single-family homes they aren’t welcome in certain neighborhoods, often the most desirable and opportunity-rich areas of town,” write authors Kendall Cotton, the Frontier Institute’s executive director, and Mark Egge, a Bozeman-based data scientist.

The report says Montana cities should rewrite zoning codes to make it easier to build medium-density housing in urban areas currently reserved for single-family dwellings. It also calls for the Montana Legislature to pass bills that force local governments to use less stringent development standards.

“Building more homes is the only way to ensure that our communities can grow while remaining vibrant, entrepreneurial, and affordable for low and middle-income Montanans,” Cotton and Egge write. “Pro-housing reforms will give landowners the freedom to build new homes where they are needed most, at no additional cost to taxpayers.”

Some of the state Legislature’s leading Republicans have publicly signaled interest in tackling the housing crunch with market-oriented regulatory reforms in recent months, indicating that the report’s recommendations could foreshadow how Republicans will try to address housing policy during the 2023 legislative session. 

“The most affordable stick-built housing is 2-4 family units (duplexes, triplexes, and four-plexes). Yet most communities, including Bozeman, have strict zoning rules requiring large minimum lot size, a multi-family residence exclusion, and strict parking requirements,” Rep. Llew Jones, R-Conrad, wrote in an opinion column in December.

“The one and only way living in Big Sky Country can be affordable for average Montanans going forward is if we build more housing,” Sen. Greg Hertz, R-Polson, wrote in a February opinion column. “That necessary development does not have to ruin the character of our beautiful state, especially if local governments get outdated and needless regulations out of the way.”

Republican Gov. Greg Gianforte has also signaled interest in regulatory reform, justifying a veto of a bill that would have allocated state dollars to tax credit-based housing subsidies last year in part by citing deregulation as an alternative. 

“I believe the most effective way to address housing affordability challenges in our growing state is to reduce the panoply of regulations faced by housing development,” Gianforte wrote.

Montana’s housing market, already tight in many parts of the state before the COVID-19 pandemic, has ratcheted into a full-blown crisis over the last two years, putting the screws to everyone from low-income renters to would-be homebuyers and business owners who are in many cases seeing their workforce priced out of their communities.

Echoing a national trend, home prices in Billings jumped by more than 16% between 2020 and 2021, according to local realtors, and prices in Helena surged by more than a quarter in 2021. The median single-family home price in Bozeman was $772,500 as of January, according to Big Sky Country MLS — a figure that’s up by 70% since January 2020.

Reliable data on rental rates in different parts of Montana is hard to come by, but anecdotal evidence indicates rents are also rising across the state as low vacancy rates give landlords more power to name their price. Figures reported by the Missoulian, for example, indicate the vacancy rate in Missoula fell from about 6% in 2019 to less than half a percent in mid-2021, and that the city’s average rent increased from $862 to $1,098.

Most housing experts attribute rising housing costs to supply-and-demand dynamics, saying Montana simply doesn’t have enough homes available to put a roof over the head of everyone who wants to live here, particularly given a wave of in-migration during the COVID-19 pandemic.

“There is by any metric an enormous housing shortage in this state,” Pew Charitable Trusts researcher Alex Horowitz told a legislative committee late last year. 

Bridging the housing gap is, however, easier said than done. Pandemic-era worker shortages and supply chain snafus haven’t spared the construction industry, for one thing, making it harder and more expensive to build new homes. 

For example, a study published last summer by the One Valley Community Foundation, which serves Bozeman and the surrounding area, estimated the typical cost of building a new single-family home in the city at $799,000 — more than twice the purchase price considered affordable for a median-income family. For townhomes, the estimated construction cost was $438,000.

Bozeman and other fast-growing parts of Montana must also contend with growth conundrums both practical and political, ranging from finding money for new roads and sewer lines to addressing existing residents’ concerns about how new construction will change their neighborhoods.

Mid-density housing, often called “Missing Middle Housing” in urban planning circles, is seen by its advocates as a key solution to the latter concern, a sort of happy compromise between low-density neighborhoods of single-family houses and high-density apartment buildings. The term includes arrangements like duplexes, townhouses and clusters of cottages, housing types that were historically built in many urban Montana neighborhoods, but became rarer as construction focused on suburban-style development after World War II.

Egge, who formerly served on Bozeman’s planning board, said in an interview this week that current zoning codes are commonly a deterrent preventing those styles of housing from being built today.

“Part of the reason that supply is not keeping up with demand is that there are many barriers to the creation of housing,” Egge said. “Our code is very prescriptive about what types of housing can be created in existing areas.”

Loosening those codes is an idea that has found purchase in recent years across the political spectrum. As the Frontier Institute notes, the federal government has issued policy documents critical of development restrictions such as minimum lot sizes and parking requirements under the administrations of Presidents Obama, Trump and Biden.

In Montana, Rep. Danny Tenenbaum, a progressive Democrat from Missoula, sponsored an unsuccessful bill during the 2021 Legislature that would have forced larger Montana cities to allow duplex, triplex, or fourplex housing, effectively banning single-family zoning. Tenenbaum argued the state should take action because city leaders in places like Missoula had been moving too slowly. 

Opponents, including the Montana League of Cities and Towns, argued that the bill infringed on local governments’ authority to manage their own affairs. A Republican legislator on the committee tasked with giving the bill an initial review also worried aloud about it opening the state to lawsuits from current property owners.

The GOP-controlled Legislature did pass a separate bill last year limiting Montana cities’ ability to mandate affordability targets for new homes, gutting existing programs in Whitefish and Bozeman.  

The Frontier Institute, founded in 2020, describes itself as a free-market think tank. Cotton, who previously worked for now-U.S. Rep. Matt Rosendale, said this week that the 501c(3) nonprofit doesn’t disclose its funders, but that it is “primarily supported by individuals and businesses across the state.”

The institute’s report, titled the Montana Zoning Atlas, maps zoning designations in six Montana cities: Billings, Missoula, Helena, Kalispell, Whitefish and Bozeman. It categorizes each residential parcel by whether the zoning rules applied to it by city governments permit multifamily housing.

The study singles out Bozeman and Missoula for specific criticism, saying the cities’ zoning codes either prohibit multifamily development outright in many neighborhoods or have minimum lot-size requirements that make duplex-style construction difficult even in zoning districts that theoretically allow it.

The report’s analysis, conducted by Egge, concludes that more than half the residential land in Bozeman and more than three-quarters of the residential land in Missoula is explicitly or effectively limited to single-family residences.

Maps included in the report indicate that many of the neighborhoods in Bozeman near the Montana State University campus are zoned R-1, a single-family residential designation that allows for only one dwelling unit per parcel. Egge said in an interview that the designation prevents homeowners in those neighborhoods — say, an empty-nest couple with a large house who want to create a basement apartment they can rent to students — from converting their homes to duplexes. 

Other parts of Bozeman have ostensibly higher-density zoning regulations, but are saddled with restrictions that limit development density in other ways. For example, Bozeman’s zoning code technically allows two dwelling units per lot in the R-2-zoned residential neighborhood north of the MSU campus — but only on parcels that are at least 5,000 square feet and, unless they have alley access, 60 feet wide. Egge’s analysis indicates that many of the home lots in that neighborhood don’t meet one or both of those criteria, meaning they’re in effect zoned as single-unit properties.

Property owners can sometimes obtain exceptions to the rules, and housing arrangements that predate current zoning codes are typically grandfathered in under current rules. Even so, Egge said, the restrictions make it harder for Montana neighborhoods to evolve over time in alignment with residents’ needs.

“It creates rigidity in the housing market,” he said.

In contrast, the report points to Helena as an example of a Montana city where city leaders have enacted a comparatively flexible zoning code.

Helena’s code has for years allowed duplexes without special permission in all of its residential zoning districts. In 2019, the city commission also voted to eliminate minimum lot size requirements and relax other zoning restrictions in an effort to make housing development within the city easier.

Helena does still have zoning requirements on the books limiting the percentage of a home lot that can be covered with structures, specifying that new buildings be set back certain distances from property lines, and requiring residences to have a certain amount of parking available.

Helena city planner Ellie Ray said this week the 2019 zoning liberalization was one of several strategies the city has employed to promote housing affordability, along with efforts such as encouraging tax credit-subsidized rental developments and looking at repurposing city-owned land for housing projects.

“We try to leverage every tool that we can within reason,” Ray said.

Bozeman and Missoula have both taken steps toward liberalizing their own zoning codes in the name of housing affordability. Missoula, for example, revised portions of its zoning code in 2020 in an effort to promote construction of accessory dwelling units, which are small housing units such as backyard cottages built on lots with existing homes.

Additionally, Bozeman Deputy Mayor Terry Cunningham said in an interview this week that city leaders there are also concerned that aspects of the city’s zoning code may be too restrictive and are working toward revising them. He also said requests to approve higher-density development in Bozeman routinely spurs vigorous public debate, but maintained that “our commission has proven time and again that we do have the political will to stick with our growth plan.” 

“We firmly believe that to accommodate the growth Bozeman is experiencing and to keep us from sprawling all over the valley, high-density urban design and living is our future,” he said.

Cunningham added that he wants cities like Bozeman to have the chance to work out what additional neighborhood density looks like for themselves, instead of having sweeping zoning changes forced on them by the Legislature.

“There is room for upzoning,” he said. “We would like to do it more organically and holistically as a community with community input, rather than reacting to top-down restrictions.”

“Our preference,” he said, “would be to allow local municipalities the flexibility to tailor zoning codes to local needs.”