Economist urges local authorities to ease land use regulations

High housing prices are likely to continue, but factors such as local land-use regulations are limiting supply growth, according to the University of Montana’s Bureau of Business and Economic Research’s mid-year economic update.

The update was presented on August 1 at the Hilton Garden Inn in Kalispell and focused on housing affordability in the state, offering insight into possible solutions to increase the state’s housing supply.

Speakers Patrick Barkey, office director, and Todd O’Hair, president and CEO of the Montana Chamber of Commerce, gave talks in six other Montana cities before coming to Kalispell.

Local regulations can impose height limits, land-use restrictions and limits on the number of housing units, Barkey said, ultimately limiting development.

“We should give local authorities a lot of freedom to ease the restrictions that limit housing supply,” Barkey said.

The Republican-controlled state Legislature in 2023 took aim at local land-use regulations, passing a quartet of bills aimed at increasing housing construction across the state. Residents opposed to the changes to state law have filed a lawsuit.

Barkey warned local authorities against introducing further regulations that would not solve the supply problem, recommending that existing regulations be assessed for their impact on housing construction.

“If it doesn’t increase supply, it doesn’t address the root cause of the problem. Which is too many people trying to get into too few housing units,” Barkey said.

According to U.S. Census data, in the decade to the 2020s, Flathead County saw a 6.2 percent increase in housing units compared to a 14.8 percent increase in population.

Barkey said there are often calls to protect vacant land, which often translate into policies that restrict the land.

“The reason for these restrictive rules is very simple: they are popular,” he said.

According to data from the National Association of Realtors, the median price of a single-family home in Flathead County in 2024 was about $652,000.

“It’s not the best time to buy a home. I hate to say it,” Barkey said.

Barkey presented a statewide map that looked at the ratio of monthly payments to median household income in each county in 2024. Barkey said a reasonable amount spent on rent relative to income would be about 30%.

Flathead County came in at 68.9%, one of the highest in Montana. Most counties, however, saw rates above 30%.

“That’s a whole bunch of counties where the average-priced person can’t qualify for a mortgage and an average-priced home,” Barkey said.

Data collected by the bureau showed an acceleration in single-family home prices after the pandemic in the Flathead Valley and other counties in Montana, which continued to rise despite rising mortgage rates.

“These higher interest rates have kind of perpetuated the market,” Barkey said.

While Barkey expected higher mortgage rates to reduce demand, “we didn’t anticipate how much they would reduce supply.”

Normal real estate turnover has “fallen like crazy,” Barkey said, as people feel constrained and avoid “the full wrath of market rates.”

High real estate prices, which Barkey defines as “prices that we think are higher than what the market would bear,” have led to urban sprawl as people are pushed outward, increasing commuting costs and making it harder for businesses to find workers.

“If you can’t move because of housing costs, that’s a loss to the economy,” Barkey said.

According to Barkey, the real estate market favors older homeowners, which can make it harder for younger people to enter the market.

According to Barkey, a normal real estate market is one in which there are enough vacant homes that there is a regular turnover of properties, allowing people to move more freely.

High prices aren’t limited to Montana. Barkey pointed out that while inflation is declining, high prices nationwide are not.

Barkey’s data also predicted slower growth in the state next year in employment, personal income, wages and salaries. Montana added about 10,500 jobs last year, slightly less than the year before. Barkey compared the stabilization to an airplane reaching cruising altitude.

O’Hair was on hand to discuss the development of the Headwaters Tech Hub, a Montana-based program that aims to advance autonomous systems, biotechnology, agriculture, critical resource management and other technology innovations.

According to O’Hair, the center was established under the CHIPS and Science Act of 2022 and received one of 21 national awards, “funded to the tune of $41 million.”

“We have some growth issues right now, and it’s not comfortable. But I have a lot of confidence that we’re going to be able to solve those challenges,” O’Haire said, referring to the role the tech hub will play in Montana’s housing crisis.

Jack Underhill can be reached at [email protected] or 758-4407.