Housing has dominated the public conversation in Bozeman for the last several years – and for good reason. A recent poll found that 51% of Bozemanites say that the lack of housing they can afford makes it difficult for them to envision a long-term future in Bozeman. It’s easy to understand why – today, the median home price in our community is $864,000, more than double what a median household can afford.
Headwaters Community Housing Trust is singularly focused on this disconnect; every day, we are working to create new opportunities for middle-income households to access homeownership, and to create a more affordable and vibrant Bozeman. To that end, we strongly encourage any Bozemanite concerned with the high cost of housing in our community to vote NO on the Water Adequacy for Residential Development (WARD) Initiative.
How does WARD work? What is “Cash-in-Lieu of Water Rights?”
Bozeman sits in a “closed basin,’ which means all existing water rights have been legally allocated. For this reason, Bozeman has, for the past several decades, required new development to provide water to account for the impact on water consumption that a new development creates. A new development can meet this requirement in three ways: 1) reduce demand with water conservation systems and techniques; 2) bring existing usable water rights to the City; 3) pay Cash-in-Lieu of Water Rights (CILWR) to the City. Cash-in Lieu payments fund City efforts to develop Bozeman’s water supply at the community level, rather than on a project-by-project basis.
The Cash-in-Lieu option is generally favored by developers, as acquiring an existing water right can take several years without a guarantee of success at the end of the process. As such, 98-99% of new development in Bozeman since the 1980s has paid CILWR to the City. The City notes that Bozeman is currently using just over 40% of the water rights that we currently have – that figure rises to 60% in a drought year.
WARD would require any new residential development of three units or more that pays CILWR to price 33% of units at below market prices.
While this sounds like an easy solution to creating more affordable housing, it would, in fact, worsen housing affordability in our community.
Why doesn’t WARD work? How does affordable housing get built?
The fundamental challenge in creating new below-market housing in Bozeman is that the cost to develop a unit of housing is greater than the price that is affordable to a given population. Developers of below-market housing call this difference “the capital gap.”
Take Headwaters’ foundational project, the Bridger View neighborhood. Bridger View Bridger View is a 62-unit, mixed-income, sustainable community that includes 33 below-market homes. On average, Bridger View had a per-unit development cost about $700,000 per home – that includes the land that the home sits on, the materials that the home is made out of, the labor that went into putting the materials together, and the interest costs on the loan that we got from the bank to pay for all of the above. That means to break even on the project, the average sales price of a home at Bridger View would have to have been $700,000. But we wanted to price half of these homes so that they’d be affordable to middle-income households. That meant reducing the break-even price of $700,000 to a below-market price of $350,000 – a $350,000 capital gap, per unit. With immense philanthropic support (making up about 36% of the total project budget) we were able to bridge capital gaps on 33 of the 62 homes.
Capital gaps exist in every type of new below-market development, whether middle-income ownership like Bridger View, or lower-income rentals like Low-Income Housing Tax Credit projects (where subsidies often make up 50% of the project budget). It’s for that reason that if you require a high level of affordability in a new development without providing access to a subsidy that makes it possible, the project doesn’t work, and no housing is built. And if no new housing is built as our community continues to grow, prices will rise across the board, deepening our affordability challenges.
So how do we create more below-market housing?
WARD says that we aren’t getting enough below-market housing fast enough; Headwaters agrees. But the answer isn’t to make unrealistic demands that halt the creation of new housing. The answer is to create new local funding sources that can bridge capital gaps and grow the development pipeline of below-market units. And the money is out there – we can decide to come together and contribute as a community through a levy or bond to fund local housing solutions; we can find creative ways to tap the hundreds of millions in tourist dollars that flow through our city every year.
A truly thriving and affordable community is possible. We can choose to invest in ourselves and build a Bozeman where everyone has access to the housing that they need. Despite any good intentions, WARD would take us further away from that future. Headwaters encourages our neighbors to vote no on this initiative, and to commit to serious conversations about real solutions that can make Bozeman a more affordable city.
For more resources on WARD, see the City’s FAQ page, and read the One Valley Regional Housing Coalition Policy Analysis.
Nathan Stein, Executive Director
