Why is housing so expensive in Missoula? Learn more in part 2 of Sterling CRE’s series on affordable housing. We’re answering questions like, what factors drive up housing prices? Matt digs into local data to show the trends guiding Missoula’s housing availability.
Matt covers limited land, high building costs for developers, materials, and other factors drive up prices.
And what about labor? Particularly in Montana, there is a shortage of skilled construction workers, which means higher labor costs and extended build times. It’s a positive thing that the construction industry can provide a good living for so many families, but expensive labor adds is just one more factor in the high cost of housing.
While it may be easiest to assume that greed is driving up housing prices, the reality is that a combination of factors make it expensive to live in Missoula.
What’s the upshot? It’s often assumed that high home prices are a result of greedy developers tacking on fees to the cost of a house. But, contrary to popular opinion, developers can’t set prices. They are usually at the mercy of what the market dictates.
Over the last 10 years, builder profit has ranged from a low of 6.8% to a high of 12% on the price of a house. The Corporate Finance Institute says while no set number exists for all industries, that a “20% margin is considered…good and a 5% margin is low.” Builder profits are well below the margin most businesses operate at to remain sustainable.
Check out part 1 of this series and stay tuned for part 3 for some solutions.
Want to a topic covered on How Does That Work? Email Sarah.Knobel@SterlingCREAdvisors.com or call us at 406.289.0683 to share your ideas!
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