Limited Housing Supply and High Interest Rates Keep Real Estate Market Frozen
The University of Montana’s Bureau of Business and Economic Research Director Pat Barkey said at an Aug. 1 economic update in Kalispell that an increase of housing stock, fewer policies and more government support of development would help ease the housing market
By Maggie Dresser
As the housing crisis in northwest Montana continues to prevent many prospective homebuyers from breaking into the market while it also contributes to the rise in homelessness, economists say adding more supply is the primary tool that will reduce high home prices.
Pat Barkey, the director of the University of Montana’s Bureau of Business and Economic Research (BBER), on Aug. 1 told an audience at the Kalispell Hilton Garden Inn that in addition to increasing inventory, regulations and policies need to be reduced and local governments should be held accountable for housing decisions.
At the midyear economic update, Barkey described a frozen real estate market as homeowners hold onto their low interest rates of 3% that they locked in before rates spiked to 7%.
“There’s this intergenerational equity,” Barkey said. “What we’re seeing now is a huge tilt favoring those who already own homes — who tend to be older — at the expense of those trying to get into the market. And this is really important because the accumulation of housing wealth has been an important component. We are not allowing younger people to get in — we are not giving them the ability to get a chip in the game to buy that starter home.”
Barkey said there is a 40% difference in housing wealth comparing an individual in their 30s in the 1980s to today, meaning the current generation of hopeful homebuyers has significantly less housing wealth than previous generations.
According to data, the ratio of home prices to median household incomes in Flathead County is 9.8%, where the median housing price is $652,000.
“These trends have produced some extremely expensive real estate, particularly relative to income,” Barkey said.
This wide gap between income and housing prices have also contributed to the rise in homelessness, Barkey said, which his research teams have concluded after evaluating annual Point-in-Time surveys, an imperfect data collection system that tallies homeless populations.
“The story of homelessness is a consequence of bad life choices, bad health, drug issues, mental health — whatever it is — and affordability is part of it,” Barkey said.
To ease the affordability burden, Barkey stresses the need for more housing units to keep up with the demand of the growing Flathead Valley, but he also suggests reducing regulations and barriers that slow construction.
“We have a lot of policies on the local level — they are policies that try to harmonize housing, that try to put housing where we think it ought to go and make it conform to what the community wants,” Barkey said. “Everything from building codes, minimum parking requirements, impact fees, height restrictions — there’s a lot of restrictions on housing … it makes me concerned that we are not building enough housing.”
Barkey also says more evaluations need to be completed so officials can break down which policies work.
For example, mortgage interest deduction on federal income tax is designed to help Americans own their homes, but economic studies have revealed it has no impact on homeownership and instead only helps them buy larger homes, Barkey said.
Additionally, Barkey encouraged local governments to measure their jurisdiction’s developable land and quantify their issued building permits, and pressed elected officials to focus on development instead of preserving vacant land.
“These restrictive policies exist for a very simple reason and that is because they’re popular,” Barkey said. “There’s tremendous support for leaving land vacant and preserving views.”