Editor’s note: Stephen Box is a Rutland-based general contractor, landlord, and advocate for citizen developers.
When it comes to increasing the number of available affordable housing units in Vermont, there are two strategies.
The first approach is to build more affordable housing, and this is the current favored strategy of Vermont’s non-profit housing developers with projects such as the St. Johnsbury (nine units, two commercial spaces, gallery – $6 million) and Putney (25 units – $15 million) which results in apartments that cost roughly $600,000 each.
The second approach is to build more market-rate housing, which opens up affordable housing options in a phenomenon referred to as the “filtering up” effect. As more expensive market-rate housing becomes available, those who can afford it will move in, which frees up older, less expensive housing that is then available to those with lower incomes.
Currently, market-rate housing typically gets encumbered by local requirements for community benefits that include “inclusionary zoning,” which requires the developer to include affordable (lower rent or lower rent/subsidized) housing in the project.
This practice lowers the potential profit of a project, and it is argued that this makes financing more difficult, resulting in developers choosing not to build or building less, which limits housing supply and drives up rents.
Evan Mast of the Upjohn Institute examined the data from new multi-unit buildings in 12 different cities, and his research finds that when a developer builds 100 new market-rate units, it opens up “the equivalent of 70 units in neighborhoods earning below the area’s median income. In the poorest neighborhoods, it opens up the equivalent of 40 units.”
At the end of the day, there is no doubt that Vermont is in the midst of a housing crisis and that the future of Vermont demands an increase in housing.
That being said, the question is simple: what housing development strategy will yield the most significant impact on Vermont’s housing needs?
Doubling down on market-rate housing is a solution with many benefits.
The first is that there is a need for market-rate housing.
Four years ago, Rutland City hired a zoning administrator who bemoaned the fact that he couldn’t find housing. Around the same time, the local Home Ownership Center, NeighborWorks, hired a new executive director who echoed the ZA’s complaint, “There is no housing.” Hospital administrators complain that they pay more for traveling healthcare workers because they can’t attract new employees because “there is no housing!”
If Vermont wants to attract and keep professionals, it needs market-rate housing.
Second, an increase in market-rate housing opens up affordable housing that is currently occupied by tenants who can afford to pay more. Still, there is not enough upscale housing available.
Third, an increase in market-rate housing reduces pressure on the housing market, leading to lower prices and rents. This increases the number of units that qualify as “affordable,” whether due to the lower rent or the subsidy. (Public tenants such as the Vermont State Housing Authority or the Rutland Housing Authority have maximum rent rates that they allow for their subsidized tenants)
Fourth, market-rate housing promises a greater yield on an investment, which makes it more attractive to investors, resulting in a shorter timeline for development. The materials cost the same; it’s the time that is expensive, and moving faster saves money. Encouraging market-rate housing developers results in more housing developed efficiently and more rapidly.
Given the landscape for affordable housing grants, subsidies, tax credits, loans, and other funding sources, it seems reasonable to ask the simple question:
“What is the fastest route to success, build affordable housing or build market-rate housing?”
Obviously, it’s not an absolute either/or situation, but the focus has certainly been on the low-yield and expensive affordable housing strategy, while the market-rate housing strategy has the potential to have a greater positive impact on Vermont’s housing crisis.
This defense of the market-rate housing industry is sure to stir the ire of the “Affordable Housing Industrial Complex,” but the ensuing debate is certainly worthy and might even result in a new commitment to exploring innovations in housing development.
When all is said and done, all development includes acquisition (land) fees, construction costs, and development fees. When evaluating projects, ask where the money is coming from. Are these public funds or private investment? Ask where the money is going. Who is profiting from this project, and how much? Ask who is responsible for future costs for the development. Is it the developer, or some non-profit organization, or the community on the hook for the future of the project?
The most significant opportunity for Vermont when it comes to housing is data, significant data so that the discussion on affordable housing needs, market rate needs, and the needs of the future are rational and date-based.
For more info, visit: partnersinhousingvt.com.
