Questions & Answers About Affordable Housing
Is there a need for more apartments that are affordable to Montanans?
In Montana, an individual making minimum wage must work two jobs to afford a two-bedroom apartment. Montana’s housing woes have gotten more severe in the past year. The housing impacts of the COVID-19 pandemic have outstripped the ability of the market to provide apartment rent rates that working families, seniors, and individuals with disabilities can afford.
Are there resources available to help families pay rent?
Rental assistance through Section 8 vouchers is provided to 14,000 families, seniors, and those with disabilities. However, there are 5,000 renters waiting for Section 8 vouchers and thousands more on public housing waiting lists.
What resources are available to build new apartments? Why can’t the private market meet the need for more apartments?
Construction of new apartments and preservation of existing developments that are affordable is primarily funded by the Federal Housing Tax Credit Program. The tax credits are awarded by the Montana Board of Housing. Over that past five years, limited tax credits have meant that $300 million of new and preservation developments with 2,000 apartments have not been funded. More than half of these unfunded developments are in small towns and rural areas. The market studies completed with Federal Housing Tax Credit applications show an extreme need for more apartments in rural and urban communities.
There is another source of federal funding available that uses bonding and 4% tax credits, which are very underutilized in Montana compared to other states. If Montana could provide state funding for housing, these additional resources could be used to build more apartments throughout Montana.
The 2019 Legislature approved the Montana Coal Tax Home Loans Fund, setting aside $15 million from the Coal Trust to be invested in Montana housing developments. Within six months, coal tax loans were made to seven projects in Belt, Cascade, Havre, Livingston, Helena, Joliet, and Laurel. The $14.5 million loaned was leveraged with $17.8 million of private funding to create $32.3 in total construction costs.
There is another source of federal funding available that uses bonding and 4% tax credits, which are very underutilized in Montana compared to other states. If Montana could provide state funding for housing, these additional resources could be used to build more apartments throughout Montana.
The 2019 Legislature approved the Montana Coal Tax Home Loans Fund, setting aside $15 million from the Coal Trust to be invested in Montana housing developments. Within six months, coal tax loans were made to seven projects in Belt, Cascade, Havre, Livingston, Helena, Joliet, and Laurel. The $14.5 million loaned was leveraged with $17.8 million of private funding to create $32.3 in total construction costs.
What can Montana do to create more apartments that working families, seniors, and individuals with disabilities can afford to rent?
Montana can take steps to provide more funding for apartment developments, working to solve the housing shortage by attracting private capital into the state. Ways to provide funding for housing include a $15 million increase to the Coal Tax Loans Fund; creation of a State Housing Tax Credit to mirror the federal credit; or a direct appropriation to the Montana Housing Fund, administered by the Montana Board of Housing.
How would a State Housing Tax Credit work?
Tax credits provide equity to a development which reduces the mortgage needed for construction. More equity means lower mortgage costs which means lower rents. Once approved by the Legislature, the tax credits would be awarded by the Montana Board of Housing to qualified developments, which would not be built without the State Tax Credits. In today’s state budget environment, the fiscal impact of a tax credit is delayed for three to four years, while the construction would begin within a few months of the awards. The State Tax Credits are claimed after construction is complete and the apartments are occupied. Tax credits require that apartment rent stay low for 40 years.
What will be the impact of a State Housing Tax Credit?
A $3.2 million annual allocation (matching the Federal Tax Credit Allocation) would result in approximately 1,200 more apartments that working families, seniors, and individuals with disabilities can afford. The LIHTC works like a down payment reduces mortgage costs: Tax credits put more equity into project, requiring less debt, allowing for lower rents.
The fiscal impact to the state budget is estimated at $94 million over 15 years, with a maximum of $15 million in the sixth and seventh years after passage. There is no fiscal impact delayed until the third, or possibly, the fourth year.
Based on economic impact results of a state housing credit in other states, the economic impact far outweighs the fiscal budget impact. A Montana State Tax Credit will spur more than $1 billion in economic activity or $11 of economic output for every $1 in state tax credits.
The fiscal impact to the state budget is estimated at $94 million over 15 years, with a maximum of $15 million in the sixth and seventh years after passage. There is no fiscal impact delayed until the third, or possibly, the fourth year.
Based on economic impact results of a state housing credit in other states, the economic impact far outweighs the fiscal budget impact. A Montana State Tax Credit will spur more than $1 billion in economic activity or $11 of economic output for every $1 in state tax credits.