The Right (and Wrong) Ways to Provide Affordable Housing in Whitefish


I get nervous whenever people in authority begin talking about fixing social problems with economic solutions. My latest anxiety is caused by recent discussions about the “affordable housing crisis” in my ski resort hometown of downtown-whitefishWhitefish, Montana.  What causes me so much angst is the number of people who believe it is the proper role of government to ensure housing is affordable. First of all, it isn’t; and secondly, when government attempts to make housing affordable, it usually does the exact opposite, causing housing prices to grow much faster than the rate of inflation, and oftentimes ending up with housing costs much higher than in communities that didn’t implement affordable housing policies at all.

“Affordable” can be difficult to determine because Americans routinely  make spending adjustments to ensure they can buy things that are most important to them. For example, in Whitefish, housing can be nearly 50% more expensive than in other communities in the surrounding area. Some families may decide that saving money for their children’s education is more important than their zip code, so they may forego a Whitefish residency; and with the money they save living in a less expensive community, they will invest in college funds. Other families might decide not to have children at all, because living in a resort town like Whitefish is their ultimate goal, while other families with children might decide to live in less expensive communities  and spend their savings on transportation to Whitefish and ski lessons for their kids. Different families make different decisions, and so a one-size-fits-all definition of “affordable” can be challenging. With that said, we should give Whitefish credit for attempting to define housing affordability as such:

Housing is affordable when the monthly payment (rent or mortgage) is equal to no more than 30% of a household’s gross income.

While this definition sounds workable, what it doesn’t do is take into account people’s financial positions over time. For example, many small business owners have unpredictable incomes. In a particular bad year, a business owner might be paying out more than 100% of his earnings towards a mortgage while having to buy groceries and gasoline on his credit card, but in other years his income might be high enough to render his mortgage payment only 10% of his gross income. If government programs offer people less expensive housing for having low incomes, it shouldn’t be surprising when applicants for government assistance “under earn” in order to qualify for subsidized or low cost housing; but soon after they move into their affordable home, increase their incomes to satisfy their particular tastes.

In reality, Whitefish doesn’t have an affordable housing problem; it has a poor economic development problem. For the last 30 years, Whitefish has transformed itself from being a relatively high wage railroad and logging town into a world class resort.  Now, 50% of the jobs available are in tourism related service industries (TRSI). Unfortunately, TRSI jobs tend to pay the lowest wages in any economy. In the last few years, Whitefish has seen significant growth in TRSI businesses and a resulting increase in low wage labor demand. Last summer, Whitefish employers reported hundreds of available jobs went unfilled because workers couldn’t afford to live in Whitefish, and those workers who lived out of town often quit their Whitefish jobs when they found employment closer to where they lived.

The second cause for Whitefish’s lack of affordable housing is the desire of current residents to maintain our beautiful wide open spaces and resort town theme.  Many building restrictions prevent land developers from building houses on small lots, and height restrictions make high occupancy apartment complexes impossible.  In 2015, Whitefish voters approved a 1% resort tax increase to help finance the purchase of a conservation easement from F.H. Stoltze Land and Lumber Company that essentially takes 3020 acres of land out of development, thus reducing the supply of available land for future housing projects.  By encouraging low wage TRSI jobs to locate in Whitefish, while simultaneously limiting housing supply, Whitefish has created its own housing crisis via poor planning.

Whitefish is a wonderful community. With its low crime, friendly neighbors, easy access to outdoor recreation, and quality health care, it is an extremely popular location for older, affluent people who wish to purchase second homes. Because of the high demand, retired transplants from other regions are willing to38277_105092776211022_364462_n-2 pay top dollar to live in our utopia. In order to cater to these wealthy new comers, there has been a proliferation of TRSI businesses, such as: restaurants, art galleries, gift shops, outdoor recreation opportunities, hotels and spas. Success breeds success, and when the first wave of TRSI businesses showed profits, subsequent waves of new TRSI businesses opened in town, creating a shortage of entry level housing. Because there are so many TRSI employers in Whitefish, they are able to place tremendous political pressure on our civic leaders to solve their unique labor problems. From this pressure, we have seen a growing number of community leaders organizing to respond to the TRSI’s self-inflicted labor challenges.

Whitefish is not the first attractive community to experience high demand for cheap housing and a self-imposed low supply.  For many decades, popular cities like San Francisco and New York, as well as resort towns in Vermont and Colorado, have all attempted to find housing for the people who work in their communities. From their experiences we can learn what mistakes not to make.

The first mistake to avoid is implementing  rent caps or price controls. Anytime government artificially sets the price of a good or service above or below equilibrium, the results tend to be the exact opposite of what was intended. This is because rents set below market price discourage investors from constructing new units or repairing the ones they already own. In nearly every community that has implemented rent control, rents increased faster than the rate of inflation. Not only do rent control programs cause rents to increase, they are also notoriously unfair because those who are selected to enjoy rent at lower than prevailing prices are often chosen by lottery rather than financial need, so it is quite often that wealthy, well-connected people who hear about an opening in a rent controlled building will often apply and win.

A second mistake would be to implement programs that force developers to donate lots or homes in new developments for the purpose of allowing  low income buyers to purchase a home at below market price.  While these programs are extremely popular (who wouldn’t want to buy a home at below market cost?), they only help the few people who qualify; but, they force the price of every other newly constructed home in the neighborhood to increase. Let’s say the City of Whitefish only allows a developer to build 20 new homes if he promises to donate 2 of those homes to the Whitefish Housing Authority. These 2 homes would be sold to 2 lucky lottery winners to purchase these donated homes below market cost. The developer in turn, raises the cost of the other 18 homes to compensate for the loss he incurred by the city’s affordable housing policy. When the 2 lucky families eventually sell their homes, they are not going to sell them at below market cost, so those homes are no longer affordable, and new affordable homes will have to be made available to replace them.

Finally, it is a bad idea to use tax dollars to subsidize rent in more expensive neighbstonecreek-apartmentsorhoods. In the same way that federal subsidies in both health care and higher education have led to nationwide cost increases many times faster than inflation, providing government dollars to cost shift the high price of housing will lead to the same fate. Let’s say that a typical home in Whitefish will rent for $1300/month. If a tenant can secure $200/month in subsidies, the cost of that home in time will rise to $1500/month. If the government attempts to offset this rise with even more subsidies, the price will go up every time more subsidies are made available.

There are several ways Whitefish can offer less expensive housing options for its low wage workers. First of all, the city can reduce its restrictions on non-luxury homes, such as manufactured homes, micro houses, and multi-story apartment buildings. Additionally, it can encourage entrepreneurs to provide dormitory-style housing for seasonal workers similar to the kinds of quarters the military uses to house its servicemen and women.  Finally, business owners can be encouraged to collectively develop housing cooperatives to provide low cost housing for their own employees. Businesses could purchase whatever number of housing units they would like, with the stipulation that when they rent or sell they must do so at prices the other co-op members decide.

Make no mistake, affordable housing is not a Whitefish community problem, it is a Whitefish business owner problem. Whitefish TRSI employers aren’t any different than other employers, and if they believe they can get someone else to solve their economic problems via government subsidies affordable-housingor community cost shifting, they are going to try. The easiest way for TRSI businesses to ensure their employees can live where they work is to pay them more.

In spite of the concerns we hear from Whitefish TRSI businesses and their advocate, the Whitefish Chamber of Commerce, we should not succumb to their petitions to have the rest of the community – via government policies and programs – to shoulder their responsibility for keeping their own employees happy. Instead, we should think twice before encouraging more low wage TRSI jobs to locate in Whitefish, and we should encourage our civic leaders to ease up on building regulations that discourage the free market from providing  low cost housing options to meet the current demand.

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