The City of Bozeman recently retained Economic Planning Systems (EPS) to look at the Water Adequacy for Residential Development (WARD) initiative’s requirement that a residential development of three or more units seeking to meet its water demand using the City’s cash-in-lieu of water rights provide 33% of the homes at affordable rates. EPS’ analysis includes what the 33% requirement would do to a project attempting to be built in the current market.
The study’s results are in, finding that across single-family home developments and multi-family apartments, no developments would be feasible under WARD’s affordability requirement.
“These results confirm what housing industry professionals have long known: in today’s market, land, materials, labor, and lending are the driving forces behind the cost of housing and profit margins are slim,” says City Manager Chuck Winn. “The reason why affordable housing is hard to come by is that these units simply do not make a profit, and significant subsidies are needed to make these developments work. The math shows this.”
According to the study, a 30-unit single-family home market-rate development without affordability requirements could make a 10% profit in today’s market. With WARD in effect, that same development may lose $25,000 per home, for a total loss of 4%. The model also looked at a 90-unit apartment complex. According to the report, such developments are not currently feasible in today’s market without affordability requirements, and WARD increases the funding needed to make a profit by $2.6 million.
“People are seeing lots of apartments being built right now, and they should be aware that these apartments began years ago under different market conditions,” Winn stated.
The Water Adequacy for Residential Development (WARD) is a local ballot initiative that was created by a group of citizens, not the City of Bozeman. The ballot issue seeks to change code language to require developers of three or more residential units to pay cash-in-lieu of water rights to the city only if the development designates 33% or more of the units as affordable.
If the developer does not include 33% affordable units, they are responsible for securing water rights, which could take five to eight years with no guarantee of a water right at the end of that process. The WARD initiative also removes the ability for developers to meet the water demand of their development through off-site water efficiency or conservation measures.
“If developers can’t make a reasonable profit building in Bozeman, they will go elsewhere,” Winn explained. “That could have negative impacts on our community. You might see developers move to the county and other communities, which could increase sprawl, increase commuting, and negatively impact the environment. If less housing is built in Bozeman and the demand to live here continues, we would expect the cost of housing to increase even further.”
Those interested in learning more about water, housing, and WARD in Bozeman can visit engage.bozeman.net/ward.
