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HomeMy WebLinkAbout09-23-25 Public Comment - L. Jay - Comments on City Commission Meeting Today 9_23_2025 Consultant Presentation on WARDFrom:Lorre Jay To:Bozeman Public Comment Subject:[EXTERNAL]Comments on City Commission Meeting Today 9_23_2025 Consultant Presentation on WARD Date:Tuesday, September 23, 2025 8:54:59 AM Attachments:Public Comment 09_23_2025.pdf CAUTION: This email originated from outside of the organization. Do not click links or open attachments unless you recognize the sender and know the content is safe. Please see my comments in the attached. Lorre Jay To: Mayor Cunningham, Deputy Mayor Morrison, City Commissioners Magic, Bode, and Fischer From: Lorre Jay, Bozeman resident Date: 9/23/2025 Re: Economic and Planning Systems Analysis Presentation of the Feasibility of the A:ordability Requirements of the Water Adequacy for Residential Development (WARD) Ballot Initiative, 9/23/2025 The following are my comments on the presentation prepared by Economic and Planning Systems Analysis (the “Consultant”) of the Feasibility of WARD. There appear to be several flaws and faulty assumptions that make the conclusions invalid. Incorrect Assumptions or Statements that Contradict City Information On Slide 2, bullet 2, the Consultant states that one of the eVects of the WARD ballot initiative is that development needs to purchase water rights if they do not meet aVordability requirements. Development is a choice based on many factors. According to the City, 99% of development purchases water rights through the City. By using this entry point, the City gets to direct housing that is needed to meet the needs of the community, rather than housing that is not aVordable. If 99% of development purchases water from the City, then this is not a salient point. On Slide 2, bullet 4, the Consultant states that the supply of housing in Bozeman will likely not keep up with the demand. This is a misstatement. The unaVordable housing surplus in Bozeman is oVered at price points that are not aVordable based on Bozeman incomes. There is a surplus of market-rate/luxury housing in Bozeman, as reflected in the 22% vacancy rate for housing built after 2020 (Sterling CRE Advisors, Q1 2025 Market Update) with average rents of $2300. This is evidence of a very unhealthy market for investors. This may result in a building moratorium as investors tend to flee when vacancies get to this level. Bozeman’s first-time home buyers decreased to 24% this year from 32% last year. This is the lowest it has been since 1981, when NAR started collecting the data. 55% of Bozeman rents and 45% of renters are in the 60% of AMI category or less. “Given that Hotels & Restaurants is the fastest-growing job sector in Gallatin County, it is expected that the first wage quartile (the lowest 25 percent of earners) would see substantial growth… with annual wages at or below approximately $52,000, equivalent to $25 per hour.” (Bozeman 2024 Q2 Economic and Market Update, p. 11, latest available). However, even with that potential surplus of unaVordable housing, there is insuVicient housing at price points that are aVordable to the majority of the renters in Bozeman. A recent 23-year national study, including Bozeman, indicates that there is a housing surplus but that price points are too high to meet the needs of the community, creating a mismatch between housing supply and Bozeman incomes and aVordability. The City stated earlier this year that there is a shortage of about 6,000 homes for households earning at or below the 60% of AMI level. To satisfy this demand over a 10-year horizon, the City would need to allocate 50% to 60% of development to aVordable housing. This is not something the City has proven they are able to do under the current aVordable housing strategy. There is a disconnect between what is being built and what is required to meet the needs of the Bozeman Community. Therefore, it is not that supply will not keep up with demand, but that the supply is too expensive for the Bozeman Community to aVord. Therefore, increasing the supply of market-rate housing will never satisfy the demand for aVordable housing as the gap between the two is too great. On slide 2, bullet 5, the Consultant states that due to the laws of supply and demand, the cost of existing housing may also increase, reducing aVordability for everyone. This is not true. The costs of housing have increased due to the upzoning strategy that the city has undertaken. Upzoning increases land costs as more income can be earned on an upzoned property that holds more units. Bozeman development is producing housing price points for rent that are so high that the prices will never decline to aVordable levels. Although the Bozeman Chronicle recently stated that rent concessions were deepening for development to get vacant apartments rented, these rents will return to their normal levels next year as investors won’t tolerate reduced cash flows for very long. Problems with the assumptions used in the Pro Forma Analysis Conflation of Sales Price and Costs: On slide 4, the Consultant states that the Cost to build a SFD (Single Family Detached home) is $783,815. However, on slide 6, the Consultant states that the sales price is $783,815 per SFD. It seems that the Consultant has conflated costs with sales price. Land Cost Assumption is Well in Excess of Existing and New Development In the SFD analysis, the Consultant indicates that land costs are $150,000/per SFD home. This results in a net loss for the 33% set aside example of -$747,975 versus a $2,351,445 profit in the baseline case. For 30 homes assumed in the analysis, the land cost would $4.5 million. However, recent transactions for land annexed into the City and developed into housing sold for much lower costs. For example, BuValo Run, a 20-acre parcel, sold for $2.25 million. If you assume a small lot size of 5,000 square feet per SFD home (similar to Blackwood Groves), then you could put a total of 174 SFD on this property, which would be $2.25 mln /174 = $12,931 land cost per SFD home. This is a 91% reduction in land cost as compared to the $150,000 per SFD in the Consultant’s analysis. Another more current example of land costs is the property for sale on 19th Street across from Graf Street. This is a 6.8-acre lot with an asking price of $6.155 mln. If we assume that 10% of the lot is not buildable, then that would mean a land cost of 8.7 SFD per acre or 53 SFD total (8.7 SFD per acre x 6.1 acres = 53 SFD, which would be $6.155 mln / 53 = $116,000 land cost per SFD, a reduction of 23% as compared to the Consultant’s assumption. I note that this property has been on the market 139 days, so it may overpriced. The listing for this property on Realtor.com: https://www.realtor.com/realestateandhomes-detail/19th-Ave-S_Bozeman_MT_59718_M97710-93862?from=srp-list-card In reality, to address the land cost issue, many developers build a mix of housing, which may include SFD and multi-unit buildings similar to Gran Cielo or BuValo Run. That would reduce the land cost per unit even more. The Multifamily Analysis is Flawed and Does Not Reflect the Bozeman Market. The multifamily pro forma analysis starting on page 7 shows a net loss for the Baseline case (without the WARD initiative) of -$6,133,846. If that were truly reflective of the Bozeman market, then no development would occur here, as no developer is going to build if losses are guaranteed. Bozeman has at least 3,200 units in review or under construction as of July 2025 in Bozeman, according to various realtor reports. It is unlikely that such a pipeline would exist if these projects were producing losses, as developers are quick to respond to negative changes in market economics.