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HomeMy WebLinkAbout10-07-25 Public Comment - L. Jay - Re_ Comments on City Commission Meeting Today 10_7_25 re_ RHC WARD Policy AnalysisFrom:Lorre Jay To:Bozeman Public Comment Subject:[EXTERNAL]Re: Comments on City Commission Meeting Today 10_7_25 re: RHC WARD Policy Analysis Date:Tuesday, October 7, 2025 10:20:40 AM Attachments:Public Comment 10_07_2025.pdf CAUTION: This email originated from outside of the organization. Do not click links or openattachments unless you recognize the sender and know the content is safe. Please see my public comments attached. To: Mayor Cunningham, Deputy Mayor Morrison, City Commissioners Magic, Bode, and Fischer From: Lorre Jay, Bozeman resident Date: 10/7/2025 Re: Regional Housing Coalition WARD Policy Analysis The following are my comments on the WARD Policy Analysis prepared by the Regional Housing Coalition (RHC) Research Cited indicates No Building Moratorium caused by Inclusionary Zoning RHC references a “significant body of research that indicates that affordability requirements not finely tuned can slow overall housing production” (p.4). However, in their Mercatus Working Paper citation, the author finds no decrease in housing supply with the implementation of inclusionary zoning, which would indicate that overall housing production will not slow as a result of WARD. RHC uses Bridger View as an example of how the capital gap must be filled. However, they don’t discuss how donations were used to subsidize market-rate units. Had the market-rate units not been subsidized, perhaps the capital gap would have been much smaller. Research cited by George Mason University has a Conservative Bias and provides a false conclusion Research by George Mason University only provides conservative answers to any question. It is hard to trust any source that filters the answers before doing the research. The George Mason University Mercatus Center research article provides only theory. Many theories could apply to the analysis of inclusionary zoning. But this is not a theoretical question; it is a practical question. This research paper also concludes that inclusionary zoning in the Baltimore-Washington area does not work. This notion is false. Montgomery County, MD is one of the great success stories for inclusionary zoning. The Terner Center is a well-regarded research institution. However, their research paper is also theoretical. They state on p. 4 (Methodology), “Evaluating the impacts of IZ [Inclusionary Zoning] on housing market outcomes is difficult, in part because IZ policies at the local level can vary in so many ways.” Lorre Jay Public Comment Oct. 7, 2025 Page 2 of 4 The question RHC poses is, does inclusionary zoning work? The answer is that it does if well implemented (see citations below). Inclusionary Housing in the U.S. by Wang and Balachandran Housing Market Effects on Inclusionary Zoning by Antonio Bento et al The results are not all good, but the problems can be mitigated in cities with strong demand, such as Bozeman. In addition, the authors conclude that single-family home starts did not decrease as a result of Inclusionary Zoning. Evaluating Inclusionary Zoning Policies affordable housing act.org by Liam Hawthorne This article discusses success stories in Montgomery County MD and San Francisco CA, among other successes and challenges around inclusionary zoning The Urban Institute Model referenced on p. 3 of the RHC Analysis RHC states that “Work has been done regionally and nationally to illustrate the nature of capital gaps.” (p. 3, including hyperlinks). I have done a deeper dive into the Urban Institute (“UI”) Model and have the following observations and concerns: 1. The UI model is not dynamic as it holds all costs constant regardless of rental income. 2. The UI model inaccurately depicts markets with higher incomes and rents, therefore producing viable projects that likely are not. 3. The UI model’s simplistic design appears to demonstrate that developers achieve healthy returns using Bozeman rents and AMI @ 60%. I attach a more thorough analysis of the UI model for more detail. RHC’s analysis is short-sighted and reflective of hypotheses that are not necessarily true. To solve such difficult problems, we need “all-hands-on-deck” and solutions that have viable outcomes. To inappropriately invalidate potential solutions that change the balance of power from an investor-driven community to a community-driven community is misguided. Lorre Jay Public Comment Oct. 7, 2025 Page 3 of 4 Lorre F. Jay Deeper Dive into the Urban Institute’s Model: The Cost of affordable housing: Does it pencil out? 1. The model is inaccurately depicting markets with higher income and rent thresholds. If incomes are lower, rents are lower, and therefore the project's net operating income is lower, as costs are generally fixed. This means that higher rents, if expenses are accurate, would produce more viable projects. Example: I toggled the model to 60% of AMI and 37.1% of income, as that demonstrated a project surplus of about $54,000 for a 100-unit building - this produced a monthly rent of $1210. Looking at HUD stats for Bozeman and Denver, rent could be higher @ 60% of AMI and still receive tax credits (“yes” to tax credits). Rent thresholds @ 60% AMI for Denver and Bozeman: Bozeman rent @ 60% AMI = $1,810 (2025) and $1,635 (2024) (family of 4, note; 2025 AMI is $120,700, 2024 AMI is $109,000) Denver rent @ 60% AMI = $2,100 (2025) and $1,900 (2024) (family of 4, note: 2025 AMI is $140,100, 2024 AMI is $130,400) 2. Healthy returns to both Developers and Investors are demonstrated by this model when using Bozeman rents @ 60% AMI: Based on the above scenario inputs, I calculate a healthy $1.9 mln return to investors and a healthy 13.6% return to developers if the project gets $8.3 mln in tax credits (their assumption). Again, I am assuming their cost data is accurate. 3. The model may inaccurately measure viability without tax credits: If you toggle the above assumptions (60% AMI, 37.1% of income, which gets you to a $1210/month rent) to "no tax credits", the project goes into a deficit, but none of the costs change - which doesn’t make sense. Your debt service costs should go up as the project will require a larger loan. Likely, a lender would require a lower loan-to-value if tax credits are not being used, as the project is riskier. This would require more equity investment to make up for the difference. Perhaps the interest rate would go up as well. So unclear if their model is dynamic and accurate. Lorre Jay Public Comment Oct. 7, 2025 Page 4 of 4 4. Using their model and Bozeman rents, returns to both investors and developers are very healthy and perhaps greater than what they are currently getting. I backed into their NOI calculation and created a dynamic model that triggers off of rent. If I increase rent to $1700/month (threshold rent for 60% AMI), I get investor project returns of about $11.4 mln with $8.3 mln in tax credits and $3.1 mln without. The model assumes tax credits of $8.3 mln. Developers still get their 13.6% return. Areas for additional research: Are their costs and other assumptions reasonable? Why is their model not dynamic? The “surplus-deficit” figures are not defined and don’t seem to make sense. Just to consider the Urban Institute Model assumptions, I looked at the development costs per apartment, and they are $271k for a 50-unit development and $200k for a 100-unit development. These may be too low for our market. Any increase in these costs would reduce returns. Their cap rate assumption of 5.75% seems reasonable, and I have seen others use this rate. In conclusion, this model may or may not calculate costs correctly with/without tax credits, but because it is a black box, we cannot audit their numbers. I do not understand their surplus/deficit project conclusions, as it is not defined. If we use their cost assumptions and higher rents, we get a very nice project return for both developers and investors, particularly if they also get the assumed $8.3 mln in tax credits. However, they also get nice investment/development returns without tax credits.