Industrial Actual Property: Housing invoice might stall over Act 250 modifications

Smaller homes are starting to be built, as here in South Burlington, but they’re still over $700,000. VermontBiz photo.

Vermont house prices have had the third highest increase of any state, up 16.9% in one year; the average house price in Vermont is now $386,285

by Timothy McQuiston, Vermont Business Magazine Real estate is in a historic state of flux in Vermont. Housing is the principal focus among elected officials, while developers are trying to find a way through myriad issues just keep pace. Warehouse space is at a premium, while office space is going begging. The future of retail is evolving in the internet era, but does not entirely exclude a local storefront.

There are tremendous federal and state monies earmarked for many levels of construction. This includes more than $250 million for housing. This profound amount of money is intended for nearly all levels of housing, from those who have none, to the disabled to lower-income workers, to families with good incomes who simply can’t find a house where they want to live.

Along with uncertainty in the type of development, ongoing and much discussed issues persist: workforce, supply chain, inflation, interest rates.

Andrew Martin, CEO of Neagley Chase Construction, told VermontBiz: “Supply chain issue are still prevalent and problematic. Project schedules can be significantly impacted by long delivery schedules. A lot of effort is going into determining lead times for mechanical and electrical equipment, as an example, to determine their impact on the project’s schedule and developing creative work around solutions. Price escalation is an ongoing challenge.

“Moving quickly as possible from project concept to groundbreaking is a strong focus to try to limit the impact of increasing material cost. Most challenging is the shortage of skilled workers. This is a well-known issue that the industry has been facing for several years. We need to attract youth to our industry by demonstrating how successful and rewarding a career in construction can be. The future of our industry is dependent on how well we do that.”

Joe Poston, Senior Project Manager/CFO at Wright Construction Company, Inc in Mount Holly, agreed: “The biggest challenge for us is labor force. Skilled workers in all trades from site, concrete, framing, siding, mechanical, plumbing and electrical systems. Us and the subcontractor network we work with are all short on skilled labor, so getting projects done takes longer than just a few years ago. We are having to schedule projects farther out and not able to take on as much work as we would like.”

Governor Phil Scott stays on message when discussing affordability. At a news conference March 21, he took aim and called for back-up following a decision by the Senate Natural Resources Committee to amend the housing bill, S.100, to remove language that would lighten the burden of Act 250 permitting. Act 250, enacted in 1970, is the state’s land use and development law.

It’s the residential market that has the governor and housing advocates vexed. The combination of historically high home and rental prices and very low inventory has put a stranglehold on affordability at nearly every income level as well as on recruitment and retention of workers.

A particular point of contention was that the Senate Economic Development Committee wrote revised Act 250 language that would increase the 10-5-5 rule to 25-5-5, meaning that up to 25 housing units could be built by a developer every five years within five miles of another development. Senate Finance cut that back to the old language of 10 units.

“I don’t think most Vermonters know that there’s this thing called the 5-5-10 rule, which means you can’t build 10 houses in five years within five miles of each other,” said Ted Brady, executive director of the Vermont League of Cities and Towns. “Why? Why five years? Why 10 houses? Senate Economic Development suggested a modest increase to 25 units. We need to get back to that.”

There was also language in the bill that changed who could appeal an Act 250 permit. Brady also suggested that municipalities with strong zoning laws did not need to duplicate the same time-consuming and expensive process by then also needing an Act 250 permit.

Scott said Act 250 was intended to stop the uncontrolled building that was rampant in Vermont in the late 1960s. It worked, Scott said.

“But it’s now 2023, and our problems are not the same as they were in 1973,” he said. “It’s time we make meaningful, smart changes to address the problems Vermonters are facing today.

“Talk to almost any homebuilder or developer in the state, and they’ll give you an earful about how difficult and costly we make it to build the homes we know we need. S.100, as originally passed by the Senate Economic Development Committee, struck an important balance to bring many stakeholders together and make improvements at the local and state level.”

At that March 21 news conference, Maura Collins, executive director of the Vermont Housing Finance Agency, said the state should encourage development near services with access to public transit and sewer and water. She advocated for building taller because it’s more efficient for contractors and therefore would ease rising costs. It would also increase housing densities in designated areas where nearly everyone agrees it should be, while also reducing energy needs and all manner of environmental impacts. There has been pushback to building taller for aesthetic reasons, for example, in both Williston and Burlington in recent years.

Photo: Maura Collins with Governor Scott and Ted Brady on March 21 2023. ORCA video screen grab.

VHFA is an affordable-housing funder, and Collins has been pushing for the building of more housing because of the obvious and profound need for it as costs keep rising.

“It was VHFA that came out with the estimate that we need 30,000 to 40,000 more homes in the state. That means that we need to about triple the amount of homes we’re bringing online each year, and that means that we need more participants in this marketplace. We need more developers — smaller developers — who know these (rural) communities.”

Brady said: “The Senate Natural Resources Committee was told we can’t touch Act 250 until the study comes back. I’m sorry, it’s been too long that we’ve been waiting on a study to change even incremental things in Act 250. That’s really where, in my mind, this train went off the rails a tiny bit, and I’m hoping to get it back on.”

“We want to encourage that kind of growth and development,” Collins said, “so to artificially limit the housing developments to a number like 10 or fewer units does not seem to follow the same kind of smart-growth principles that we need to embody to address climate change where we can encourage density and as much density as possible.

“If it’s possible to go up one more floor and add three more units of housing, we should do that, because going vertical is going to have far less stormwater runoff implications and encourage the kind of density that we often want to see in Vermont,” she said.

“We are a statewide nonprofit lender focused on the housing needs of low and moderate income Vermonters.

“VHFA isn’t normally at the State House as much as we have been this year. But as everyone knows, housing’s having a bit of a moment and it’s a top priority of everyone. I’ve learned that those who hang out at the State House — many of them are here — can say how all-consuming it can be. It’s almost like a casino without enough windows. It’s easy to lose track of time and days. It’s a really bizarre place, and things that happen here make sense when you’re in the thick of it.

“But when I go home and I try to explain this to my family, even my understanding really kind of fades away.

“For example, when the Legislature began, I was very optimistic that we were going to make meaningful progress on making housing more affordable and accessible because lawmakers told us that they all heard the same things on the campaign trail. They heard from constituents who were told stories of aging parents who were living in unsafe housing. They heard countless stories of grown children, even lawmakers’ grown children, who wanted to move back to Vermont but couldn’t afford anything more than their parents’ basement. Small employers who talked about their inability to be open seven days a week because they didn’t have enough workers.

“And I know I’ve heard Sean Tester from Northeastern Vermont Regional Hospital speak repeatedly at the Legislature about losing well-paid medical staff because the candidates couldn’t afford housing in the Northeast Kingdom, even with substantial salaries.

“Organizations that focus on racial equity have repeatedly talked about the disproportionate negative impact that the housing market is having on the people they serve. And it’s not just stories. The data backs these Vermonters up.

“Last year saw the largest jump in home prices since the tax department started collecting the data in the 1980s. Half of the new homes listed with realtors now cost over $550,000. If you’re a white Vermonter, you are three times more likely to own your home than if you’re Black. Renting in Vermont is no better.

“The prices of building affordable housing have increased by more than 30% over the last few years. Demand for all types of housing is growing because the rate of people moving into Vermont since the pandemic began has almost doubled.

“Here at the State House, where time and money move at a very different pace, VHFA was thrilled to see the housing opportunities made for one bill passed out of the Senate Economic Development Committee. This was a smart-growth bill that balanced the needs of animal habitats with human habitats. It has strategic investments in award-winning programs and folded in new innovative ideas. And as a key provision it changed Act 250 to allow for up to 25 homes to be built before needing a state permit, which was an increase from the current limit of 10.

“As the bill is winding its way through the process, you’ve heard it’s evolving and its broad, statewide impact is now being limited to only a few select communities. It’s looking more and more like the Legislature wants to concentrate dense, affordable housing in our downtowns, which limits opportunities for newer Vermonters who are far more likely to be people of color.

“It also leaves our smaller, rural towns behind, further exacerbating the urban-rural divide that Governor Scott has long talked about. When we go home to our families or constituents, I wonder how we’re supposed to explain this outside of this building.”

Vermont Chamber of Commerce Vice President of Government Affairs Megan Sullivan said: “The HOME bill stands for ’Housing Opportunities Made for Everyone.’ We need the Senate to ensure this legislation (S.100) lives up to its name. The changes made by the Senate Natural Resources Committee minimize the effect of measures that would have increased workforce housing.

“Without breaking down barriers to development, living and working in Vermont will remain available only to wealthy individuals. At a time when Vermont’s workforce is dwindling, this is unacceptable.

“This bill now perpetuates the idea that the Vermont quality of life is available, but only within certain parameters. Commitments to welcoming new and diverse populations to Vermont are hollow without meaningful policy. It’s time for legislators who have committed to addressing housing as the top issue this session to step up.”

The Natural Resources Committee also removed language allowing conversions to go forward without needing an Act 250 permit if that building previously had been granted one.

“If there were a commercial use or any nonhousing use, a building would have to get an Act 250 permit amendment, as a result of converting to housing,” Scott said. “I think that’s still actively under discussion between the two committees.”

Photo: The former Holiday Inn in South Burlington, which prior to being mostly demolished was an important residence for the homeless during the pandemic, is being transformed into apartments and a new hotel. VermontBiz photo.

Vermont has transitioned from a 19th-century agrarian economy, where most of the land was open for farming and grazing, to an industrial economy, to the buildout in the post-World War II era and the rise of the suburbs, as there was a major push to build housing and retail outside the urban cores.

Vermont was slower in this process than much of the rest of the nation, but eventually great efforts were made to build covered malls in Burlington, South Burlington, Berlin and Rutland Town. That energy has come and gone in the last 30 years as the era of the covered mall in Vermont quickly waxed and waned.

The mall proposed for Williston in the 1980s, which engendered much expensive lobbying for and against, never came to fruition. Eventually, that piece of land —  and adjacent ones — became mixed-use development with no end in sight.

The downtown Burlington mall, built 50 years ago, has been demolished, and the Rutland mall, built in the 1990s, sits mostly idle. University Mall in South Burlington has been in flux for a couple decades. Proposals to knock it down were prompted by the closure of Sears. But the mall endures as a going concern despite all that. The Berlin mall has maintained its niche.

While the coronavirus pandemic finished off a number of retail outlets and further put covered malls on notice, COVID is not the reason for this historic change; the pandemic only exacerbated it.

But COVID has radically changed two aspects of real estate: housing and office.

As office space was largely vacated as workers were sent home in March 2020, working remotely went from temporary to now being a part of — and problem to —  many businesses here and across the US.

It turns out that a lot of people who were initially reluctant to work at home, now don’t want to return to the office. This has become an issue for many employers, from private to nonprofit to government.

On one hand, technology now allows efficient remote working; on the other hand, workers enjoy not having to suffer the commute.

Many employers are embracing the new reality, if reluctantly. But this leaves a big question: What’s to be done with all that empty office space? This issue did not originate with COVID. Empty or little-used office space was a curiosity even before the pandemic.

But there is always a need for available space — a “build it and they will (maybe) come” business plan. Having turnkey Class A office space gives developers an opportunity to respond to the vagaries of the economy.

COVID in Vermont, perhaps more than anywhere in the country, changed the landscape, literally, of the economy, most profoundly in housing.

Some may wonder why all that nice, empty, available office space can’t be converted to housing. The short answer is the cost.

Burlington commercial real estate broker Tony Blake, principal of V/T Commercial, for one, and Governor Scott, for another, don’t believe office space conversion is the answer to the housing crunch, despite availability and location, location, location.

Photo: There is plenty of office space available in Chittenden County. VermontBiz photo.

“If you want office space, ’Hey, what would you like?’ Blake said. “We’re giving it away. We can’t find bodies to put in the offices, because everybody now wants to work remotely. COVID really did a number on switching that market around.”

As for converting offices to residential: “They aren’t quite as well-equipped,” Blake said. “If you think about it, when you go into an office building, typically there are communal restrooms. And most office buildings, if they’re reasonably new — I’m wanting to say anything from 1980 on — are going to have a central core in their building. The bathrooms are stacked one upon another on each floor. The elevator? Same thing. So to convert that into residential, we have to get water and plumbing to all these various other places in the building that now don’t have it. It’s cost-prohibitive.” (See the full interview with Tony Blake starting on Page 8.)

Scott, a contractor long before he became a politician, echoed Blake’s comments.

“I have some experience in construction, and I can tell you that renovating a building may sound good but it’s not that easy to do. It’s very expensive. It doesn’t fit all the needs that you have. Sometimes it’s easier and more lucrative to just raze the building and utilize the land, unfortunately. But that’s where it’s at.”

“The interesting thing about commercial real estate is you can break it into three basic segments,” Blake said. “There’s the industrial market, the retail market and the office market. Of those segments, the industrial market drives the economy. Those are manufacturers or wholesalers or distributors. That portion of the commercial real estate market will also drive retail and office, which ultimately helps drive the residential market.”

Right now, residential real estate is driving the legislative process into a contentious spring. The ultimate fate of S. 100 is still uncertain.

On March 31, the Senate gave final approval to S.100. Housing advocates believe the bill was excessively diluted by the Senate Natural Resources committee and environmental interests. That committee worried that some Act 250 reforms in the original bill would result in sprawl. Housing advocates don’t think the bill goes far enough to address the enormity of the housing crisis.

The bill is now in the hands of the Vermont House, where the tension between affordable housing and land use regulations will likely increase.

 

The Cost of Housing

The housing market has been on a roller coaster ride, and it just took another big turn. For the first time in more than a decade, year-over-year home prices in the US fell in February.

Amid such an unpredictable housing market (and a hike in mortgage rates), national mortgage broker SmartAsset presented the results of its annual survey in March. The results suggest that it is increasingly important to buy a home in a place that is poised for long-term growth and stability.

The Burlington area ranked 17th best for long-term growth and stability — the only metro area in the Eastern time zone to finish among the top 20.

Burlington metro home prices have nearly tripled (192.8%) over the last 25 years with no historic loss in value, meaning prices have never dropped during that period, even when the economy was in recession.

SmartAsset analyzed growth and stability data (1998-2022) for 400 metro areas across the country.

Gone are the days of a sub-3% mortgage, commonplace during the housing market boom of the COVID-19 pandemic. Mortgage rates have steadily increased since the Federal Reserve started hiking interest rates a year ago to combat inflation. As a result, home prices have declined from recent highs in most parts of the country, but not in Vermont — and especially not in the Burlington region.

This is very good if you bought a home some time ago, but it creates an expensive and stagnant market for those who want to move in, or even downsize.

Empty nesters can’t find a local place that is substantially less costly than the equity in their home, even if that equity is substantial. So, they remain in their big homes. Younger families have little inventory to choose from, and what is available is still expensive. Vermont home prices may have ceased spiking as interest rates edged up and the market cooled off. But nothing has come down in price, nor is it expected to in Vermont.

 

Key Findings

Austin, TX, home prices have risen 354% since 1998 — more than any other metro area in the nation.

Home prices grew 154% between 1998 and 2022 across the 400 metro areas comprising the analysis, compared to an 80% cumulative inflation rate over the same time period.

Six metro areas in Texas ranked among the top 10 markets for growth and stability; 14 ranked among the top 25. All but one of those metro areas saw above-average growth in home prices between 1998 and 2022.

Cities in Michigan and Ohio rank poorly. Thirteen of the 20 worst housing markets for growth and stability are in Michigan or Ohio. Neither state made an appearance in the top 100.

A separate report released in January revealed where home prices rose the most over just the past year. It should come as little surprise that Vermont is near the top of that list.

A new study based on 2022 home values shows that Vermont had the third-highest increase in the nation.

The research, by Santa Monica Realtors, analyzed data from Zillow for the past year, across all 50 states, to determine which state had seen the biggest rise in housing prices.

The data revealed that Florida experienced the biggest increase in home prices over the past year, at 19.9%, with the average house price now standing at $404,939. South Carolina was a close second, at 19.2%, with the cost of a home now averaging $300,667. Finishing third was Vermont, at 16.9%. The average house price in state now sits at $386,285.

Of the five fastest-growing states, Vermont had the second-highest home value, just behind Florida. Tennessee and North Carolina rank fourth and fifth, respectively.

House prices in Tennessee have skyrocketed 16.3% over the past year, resulting in house prices currently sitting at an average of $311,333. North Carolina, which places fifth in the state rankings, has had house prices increase 15.7% during 2022, with an average house price of $329,634.

The states where house prices have increased the most in 2022
State	Rank	Increase in house price over the past year
Florida	1	19.9%
South Carolina	2	19.2%
Vermont	3	16.9%
Tennessee	4	16.3%
North Carolina	5	15.7%
Georgia	6	14.7%
South Dakota	7	13.8%
Montana	8	13.6%
Alabama	= 9	13.0%
New Mexico	= 9	13.0%
Arkansas	= 10	12.9%
Oklahoma	= 10	12.9%

 

Governor Scott Statement March 21

As you all know, housing has been a top priority for my administration since I became governor.

Six years ago, I proposed and worked with the Legislature to secure a $37 million housing bond, which at the time was the largest investment in housing the state had ever made, and it leveraged almost $200 million more in private investment.

At the time, we thought it was a pretty big deal. But it quickly became clear it wasn’t enough.

That’s why when we first began receiving historic federal funding two years ago, I said we must continue to make housing a top priority, and we were successful in getting the Legislature to agree.

We now have what would have been an unthinkable amount of money just six years ago dedicated for housing to help address our critical need.

But as I and many with me here have said, money is only part of the answer. We desperately need to make it easier to build homes in our state in the places that need it most.

Many of the decades-old regulations we have in Vermont at both the state and municipal level were literally designed to have the opposite effect. They were written at a time when Vermont was growing too fast and their goal was to stop building

Well, they were successful, given a majority of Vermont’s housing stock was built before 1960.

But it’s now 2023, and our problems are not the same as they were in 1973. So it’s time we make meaningful, smart changes to address the problems Vermonters are facing today.

Talk to almost any homebuilder or developer in the state, and they’ll give you an earful about how difficult and costly we make it to build the homes we know we need.

S.100, as originally passed by the Senate Economic Development Committee, struck an important balance to bring many stakeholders together and make improvements at the local and state level.

I want to take the opportunity to once again thank Senator Ram Hinsdale and members of the committee for their hard work on the bill.

Now, not everyone was thrilled with every component of it. For example, there were pieces that were a big give from municipalities.

I personally would have liked to see the Act 250 changes go much farther. But the bill was crafted in a way that acknowledged both the state and municipalities have to give a bit and have a role to play.

Put simply, what came out of Senate Economic Development was already a big compromise. Unfortunately, the changes offered by the Senate Natural Resources Committee have put this balance in jeopardy.

If we’re truly serious about addressing the housing crisis, we need to make it easier to build at both the state and local levels. If the Legislature continues to ignore Act 250 reforms, I don’t believe they can say they’re serious about solving our housing crisis.

Importantly, the changes made by Senate Natural Resources removed pieces of the bill that would help lower-income families in rural communities. What message does that send to the communities and people who need our help most?

We also have to recognize we can’t rely on municipal reforms alone; we need to do our part on the state level to remove a few roadblocks, as well, because we’re not going to solve this problem in less than 33 square miles of designated areas this bill now limits us to. We need to put all the tools on the table and work together — and we need to do it this session.

This isn’t a partisan issue. Many Democrats, independents and Republicans agree we need to make smart reforms in order to help people who desperately need housing they can afford.