Unique Partnerships Create a Community of Prefabricated Homes in Missoula, Montana

Unique Partnerships Create a Community of Prefabricated Homes in Missoula, Montana

In 2016, at the height of the production boom at the Bakken Oil Fields in Montana, a hedge fund purchased numerous fully furnished prefabricated homes as an investment, intending to lease them to oil workers. Before they were sited, however, the demand for such homes subsided, so the hedge fund decided to sell them at a discount to the Human Resource Development Council (HRDC) in Bozeman, Montana. Homeword, a nonprofit dedicated to providing safe and affordable homes in the city of Missoula and throughout Montana, acquired several of those homes, so that they could eventually house people in need. In 2019, six of those homes became the Montana Street Homes in Missoula, an infill development of affordable homes for ownership and part of the Trust Montana community land trust.

The Land

The Montana Street Homes are made up of a single one-bedroom and 5 two-bedroom factory-built homes arranged around a central courtyard on a triangular plot of land. The Missoula Food Bank and Community Center had long wanted to acquire and clean up the plot, a small scrapyard located next door to its headquarters, and put it to a greener and more vibrant use. When the property owner decided to sell the plot of land, the food bank, in partnership with Homeword’s network of impact investors, exercised its previously negotiated right of first refusal to purchase the land. The food bank then transferred ownership of the land to Homeword so it could develop Montana Street Homes.

Because of its previous industrial use, the site of Montana Street Homes was a brownfield in need of remediation. A Brownfield Revolving Loan Fund (RLF) Grant from the U.S. Environmental Protection Agency (EPA) and tax increment financing (TIF) funding from the city of Missoula financed these cleanup efforts. These funds were used to clean up contaminated soil on the property, improve points of entry to the property, extend an existing water and sewer line past an irrigation ditch on the property, and install a grate over the open portion of the irrigation ditch for improved pedestrian safety.

When Homeword added landscaping to the property, it included 10 garden boxes along the border between the homes and the headquarters of its partners, Garden City Harvest and the Missoula Food Bank and Community Center. Six of the boxes are reserved for residents, but Garden City Harvest uses the others to grow fresh produce to distribute to the community, teach local children about gardening, and provide the pleasant green spaces that the food bank wanted to create at the start of the project.

The Need for a Community Land Trust Model

Missoula is a small city of 75,000 in a valley by the Clark Fork River in Western Montana with a community that values preserving open space. Much of the surrounding land is owned by the public through federal agencies such as the U.S. Forest Service, and the city’s hills and the river leave limited land available for construction. According to Andrea Davis, executive director of Homeword, the average home price in Missoula has risen by about $75,000 in the past 4 years, driven mostly by increased demand from an influx of money and people from other parts of the state and the west coast. The problem is compounded by a lack of new home starts. However, the incomes of most Missoula residents have not risen at the same rate as home prices, and many of those who once could afford a mortgage no longer can in the new economic environment.

The increasing divergence in home values and incomes has put homeownership opportunities out of reach for many working-class Missoula residents. In response, Homeword decided to pursue a new homeownership model for Montana Street Homes. To hold the land and preserve its long-term affordability, Homeword partnered with Trust Montana, a statewide community land trust that has typically focused on conservation lands but also owns some permanently affordable sites. According to Davis, most of the likely applicants for Montana Street Homes are older single women or single, young professionals who, although they are in the workforce, find themselves priced out of the private housing market.

Residents buying one of the Montana Street Homes pay a significantly reduced price for their unit: $98,000 for the 450-square-foot, one-bedroom model and $120,000 for the 550-square-foot, two-bedroom model. Owners who earn less than 80 percent of the area median income (AMI) sign a 75-year ground lease that is renewable and inheritable. In other states, 99-year leases are used, but in Montana, state law only allows leases of up to 75 years. In return for the reduced purchase price, buyers agree that they will sell the property only to a buyer who meets the same affordability requirements (earning less than 80 percent of AMI) and that the sales price will be the purchase price of the home plus 1.5 percent of the purchase price for every year the buyer owns their house.

This model allows owners to gain some of the equity that homeownership offers while preserving Homeword’s subsidy for the property for the next generation of owners. Hermina Harold, executive director of Trust Montana, explained that because of the separation of ownership between land and buildings and the limits placed on equity increases in a community land trust, Trust Montana requires all potential purchasers to undergo three stages of counseling before signing anything, including having an attorney review the lease with them.

Financing

Montana Street Homes cost $1.22 million to bring to market, or slightly more than $200,000 per home. Half of this cost was funded through a $600,000 construction loan that will be repaid using the revenue from selling the homes. The rest of the funding came from a combination of HOME Investment Partnerships grants and impact investors, including NeighborWorks Montana, as well as the Brownfield RLF Grant from EPA and TIF funding from the city of Missoula.

Seizing Opportunities

Davis summed up Homeword’s experience developing the Montana Street Homes as a story of taking advantage of opportunities as they presented themselves, even if it was unclear where those opportunities would lead at the time. When the Human Resource Development Council offered Homeword the prefabricated homes, Homeword did not have a permanent site for them, instead storing them on city land at the sewer treatment plant. The site that finally became available came from a nontraditional source — the food bank — that Homeword learned about only because it was open to partnerships with organizations outside of the housing field. This collaboration resulted not only in a place to site Homeword’s prefabricated homes but also in benefits to the surrounding community, including the remediation of a brownfield site and the addition of new city-funded utilities to the neighborhood.

Looking Forward

Davis explained that because of the unique circumstances under which Homeword came into possession of both the land and the prefabricated homes, the development process for Montana Street Homes cannot be replicated in future projects. However, Davis does believe that lessons learned from the project can be useful for Homeword and other community partners. She praised the development as a capacity-building enterprise that taught Homeword and its partners to be flexible and to take advantage of unique conditions. For its part, Trust Montana owned and managed only one residential property before Montana Street Homes. Now, Harold reports that Trust Montana is working on two new projects in the state — in Park County and Carbon County — and intends to expand their affordable homeownership and farmland preservation work into communities across the state.