Last week KGW news reported that Portland area rents are up 22 percent since pre-pandemic levels. We see it everywhere: so-called “affordable housing” costs have risen so quickly that even though cities and states now spend more money than ever, fewer housing units are being built. In April 2024, the Cascade Policy Institute published a report asking why this is the case. Unfortunately, the state of Oregon has refused to make data available that brings to light why rising costs continue to accelerate.

Fortunately, in the year or so since then, the Montana Department of Commerce provided data on 190 housing projects. Analysis shows that only one-third of increased costs are due to actual construction; the rest is due to the increasing size of housing projects. Large projects require developers to borrow money, which then adds interest expense. In addition, developers have massively increased the amount they spend on buying property for housing.

Developers welcome rising costs because they earn fees from the projects in proportion to the cost of the project. Unfortunately, state housing agencies who hand out “affordable housing subsidies” make little to no effort to ensure these funds are used cost-effectively. This means that affordable housing mainly benefits developers rather than low-income individuals who need it most.