by Ann Schwend
Montana is suffering from an acute housing supply-and-demand imbalance that is driving up home prices and pricing out many Montana residents. One of the primary factors is that in-migration of new residents is outpacing the availability of housing units. The tight market is driving up home prices as well as increasing rental costs. A variety of factors contribute to this imbalance, such as labor and supply shortages, zoning restrictions, longer permitting times, water supply challenges, and a lack of suitable building locations. But there is far more to the story on Montana’s housing crunch, its implications for our residents, and how we can develop creative, workable solutions.
In 2022, Gov. Greg Gianforte convened a Housing Task Force charged with providing policy recommendations “to increase the supply of affordable, attainable workforce housing.” In response, the task
force developed two separate reports of recommendations, but primarily concluded that the state should focus on approaches to increase housing supply through regulatory and zoning reforms as well as increased training for construction tradespeople. Unfortunately, none of the recommendations focused specifically on the need for a diversity of home types (multifamily and multi-use) or on affordability, and seemed to target large, single-family home developments.
In response to the task force reports, several bills in the 2023 Montana Legislature focused policy efforts on the supply side of Montana’s housing crisis, removing or reducing standards. While moving through the permitting process more quickly may resolve some immediate housing needs, the legislation often came at the expense of constitutional protections such as the right to participate and the right to a clean and healthful environment. Further, while these approaches may build more homes, neither method ensures that a diversity of home types, styles, and price ranges are primary considerations. In fact, recent data from Headwaters Economics indicates that more than 50% of the homes built in the last few years are single-family residences built on large lots outside of city services, which are not typically affordable for many Montanans and come with a host of additional environmental impacts resulting from sprawl. Case in point, 41% of these homes were constructed on lots larger than 10 acres, resulting in the conversion of over 1 million acres of previously undeveloped land since 2000. Although representatives of the building industry routinely raised the issue of affordability and the housing crisis, without specific affordability criteria and environmental protections built into policy recommendations, it may be easier to build homes, but not necessarily beneficial for the public, the land, or those who need housing.
Another factor that impacts available housing stock is the conversion of existing homes into short term rentals (STRs) or vacation properties. Montana is now in a position of having to accommodate more people in less space, and it is likely that short term rentals are taking affordable housing options out of the market for Montana residents. The Montana real estate market is becoming extremely popular for both homeowners and investors. Savvy investors and wealthy homeowners can often afford to own multiple properties, especially if they are moving from more expensive markets. Unfortunately, many of these second (or third) homes are not occupied full time. Some are vacation homes that are reserved only for the homeowners, but others are vacation rentals available for short term periods (less than 30 days). These empty homes occupy space that could serve as (or at one time did) homes for people who live and work in the community. Vacation properties are great for investors, but not so great for folks that need a place to live year-round. Absentee ownership also has an impact on the dynamics and demographics of a neighborhood and the social fabric of communities.
In Montana, STRs have been in the spotlight over the last few years, with many communities trying to decide how to regulate their location and usage. During the 2023 Legislature, MEIC worked with Sen. Denise Hayman (D-Bozeman) to sponsor SB 517. The purpose of SB 517 was to better understand and mitigate the impacts of STRs on local housing markets. The intent of the bill was to collect a graduated fee (tax) on vacation rentals. After exempting owner-occupied primary properties, the first five units under a single ownership would be charged 1% of gross receipts, 2% on the next five units, and if an investor (or equity firm) owned more than 10 units the state would collect 3% on the gross receipts of all qualified properties.
During the bill drafting process, we uncovered that Montana does not require a statewide registration to track ownership, location, number of rental nights, or other important data on these types of properties. Each property does apply for a public accommodation license with the Department of Public Health and Human Services, but each city is responsible for developing their own local registration requirements and collecting local taxes or fees if they so choose. When the Department of Revenue (DOR) prepared the fiscal note for the bill, it could only make assumptions on how much revenue would be generated, because ownership of STRs is not clear. The 4% lodging tax that is collected from renters by the online hosting platforms is aggregated by each county and remitted to the DOR without specific details. DOR had to base assumptions on the 4% lodging tax, of which STRs account for 25% of the revenue generated by the accommodations market statewide ($38,318,000). The fiscal note estimated that an average 2% graduated fee would generate $9,580,000 in 2024, and $10,299,000 in 2025, increasing annually. The intent was for the revenue to be deposited into the Housing Montana Fund and made available as grants for affordable housing projects, with the condition that they be served by municipal services.
You may be asking why MEIC cares about short term rental units and housing? In part, removing available rental units drives demand for new builds, which, as identified by a report from Headwaters Economics, are often associated with sprawl and a host of environmental problems, such as climate impacts, displacing wildlife, and polluting our water. MEIC also wants to assure that Montana’s housing infrastructure is equitable and just for all residents.
Unfortunately, SB 517 did not make it out of the Senate Tax Committee, but Montana would certainly benefit from the ideas and concepts put forth in the legislation. At a very basic level, requiring a statewide registration system that tracks ownership, location, and rental history would inform the ongoing conversation. STRs are a great option for many vacationers, but we need to assure that the impacts to full time community members are addressed.
This article was published in the March 2024 issue of Down To Earth.
