In Missoula, the median-earning household needs to spend 62% of their pre-tax income to make the mortgage payment on a median-priced house, even with a 20% down payment.
That is an astronomical amount that leaves many people with no way to buy a home and start accumulating the wealth they’ll need later on in life, according to Patrick Barkey, the director of the Bureau of Business and Economic Research at the University of Montana.
“You look at 30-somethings today and compare the housing wealth they own to what 30-somethings in the 1980s had, they have 40% less wealth,” Barkey told a crowd in Missoula last week as part of the Bureau’s statewide mid-year economic update series.
Barkey’s presentation showed that there is a high correlation between housing costs as a percentage of income and homelessness rates.
Barkey was citing research from Harvard University when he presented those statistics.
“Typically, 30-somethings don’t have a lot of wealth yet,” Barkey said. “Nonetheless, it’s an indicator of what lies in the future. It’s harder to grow that wealth.”
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Much of his presentation focused on housing prices in Montana. He said there are five reasons why everyone should be worried about high housing prices as an economy and as a society.
“The first is pretty clear,” he said. “It basically puts people in an RV situation because if they’re forking over so much money just to have housing they don’t have much left over.”
Barkey’s presentation showed that there is a high correlation between housing costs as a percentage of income and homelessness rates in various cities in Montana and across the region.
The second reason is escalating home costs increases sprawl.
“People have a very long commute,” he said. “You’re driving over one-lane bridges that weren’t supposed to take that kind of traffic, but they are. Why? Because the person is really out there because they can’t afford to live here, etc.”
That means taxpayers then have to spend more money on infrastructure.
He said the poster child for that issue is Jackson, Wyoming. A highway that collapsed there meant that all the town’s workers, who can’t afford to live there and commute from Idaho, couldn’t get to their jobs for a period of time.
Another problem is high housing costs cause a shortage of workers.
“Labor is something that I don’t even really have to talk about much anymore because if you’re hiring and you’re a business in Missoula you know all about this,” he said.
The Bureau is hiring, he said, and one candidate is from Wisconsin and another is from California.
Barkey said he calculated that he’ll have to give the Wisconsin candidate 40% more than what they’re currently making just to keep their standard of living the same because Missoula’s housing costs are so high. Many businesses in Montana face the same issue.
“We see this for all kinds of jobs,” he said. “It’s very difficult to recruit labor because of the cost of housing.”
High housing costs also reduce people’s mobility in terms of moving elsewhere to take better jobs.
Barkey said that people moving to take jobs has been part of the fuel for the growth of the United States.
“Moving towards opportunity has been what’s helped grow this economy,” he said. “And when you cannot take a better job in a different area because of housing, you can’t take the job that’s a better fit for your skills, more growth opportunity — that’s a loss for the economy. That’s perpetuating a mismatch between workers and opportunities. (People moving) ultimately propelled economic growth here for centuries.”
And finally, he said, high housing costs cause generational issues.
“Older generations like me and many of you have benefited enormously from what’s going on in housing,” he said. “This big housing price gain increased the value of our asset, but it’s done the opposite for the buyers and the younger people. They have not been able to get into the game.”
They can’t buy a starter house that they later add on to and move up the ladder as their economic condition improves.
“And then they get to be at an older age and that housing wealth that they accumulated becomes an important part of their net worth,” Barkey said.
He also noted that, as a sidebar, out-of-staters are ubiquitous in Montana.
“Those of us that move to Montana from elsewhere, it’s always tough every four years to get beat up by election ads, right?” he said. “You know, ‘those stupid out-of-staters moving here.’ But wait, technically, the fraction of people in Montana that were born outside of the state is larger than the fraction that were born in Montana.”
Barkey also said that for every person who takes it on the chin to buy a home that they can barely afford, someone else is making a lot of money.
“Prices are totally symmetrical,” he said. “All the money you’re shoveling out to buy a house here in Missoula and elsewhere in the state is money someone else is taking in. So your pain, your suffering at having to fork over an incredible amount of money for housing, is equal and opposite to the joy of the person collecting. And they tend to be very quiet about that. But in some sense, it’s a wash. High prices, some people like them, some people don’t.”
David Erickson is the business reporter for the Missoulian.
