Photo: DEW Construction recent project — Army Mountain Warfare School, Jericho, VT. Photo: Ryan Bent Photography.

Workforce, inflation, fuel and politics will impact housing affordability, Act 250, CityPlace

by Timothy McQuiston, Vermont Business Magazine

Yes, there are questions about all the Class A office space left begging as workers left their cubicles and likely will never come back in full, and likewise with the pandemic escapees who gobbled up second homes here “site-unseen,” and about CityPlace, the vacant downtown Burlington mall, and about the ARPA infrastructure funds and how that will be spent on roads, bridges, and wastewater projects.

But the central question in the construction industry is on housing and where it’s going to be built, if it’s built at all, and if everyone agrees it should be built and can further agree on where, and whether that effort will be bogged down by too few workers, too much inflation, too little supply, or too much politicking.

Then maybe there will be enough housing for every income level.

See sidebar on list of VTrans projects HERE.

Housing

Affordability in low-income and middle-income housing is a general issue across the state, as is inventory.

The so-called “missing middle” housing refers to inventory that even people with average incomes cannot afford.

The common theme is that a lack of inventory has driven up home prices and exacerbated a situation in which the income-to-housing cost ratio in Vermont is one of the worst in the nation.

The National Low Income Housing Coalition ranked Vermont the nation's 16th most expensive place for rental housing and eighth most expensive for rural housing. Arkansas ranked lowest. California ranked highest. If it makes you feel any better, all of Vermont’s neighbors had higher housing cost ratios.

Associated General Contractors of Vermont Executive Vice President Richard Wobby Jr said most new construction is going toward multifamily and affordable housing.

“Housing need surpasses anything else we need,” Wobby said, both in affordable and for moderate incomes.

Photo: A new neighborhood goes up on Speer Street in Shelburne of mostly single-family homes.VermontBiz photo.

It’s become so difficult to find housing for workers that some organizations are hearkening back to the days of the Industrial Revolution, when large firms would build housing for its workers.

The University of Vermont Medical Center is financing 61 apartments on Market Street in South Burlington to help its recruiting and retention of medical staff. Rising health care costs and staff shortages are contributing factors, but of course not the only factor.

UVMC will contribute $2.8 million to the $15 million project, which is expected to be ready for occupancy by early next year. UVMC is working with Snyder-Braverman Development.

Governor Scott and Housing Commissioner Josh Hanford have spent considerable time at the governor’s weekly press briefings urging the Legislature to move more quickly on his housing proposals.

The governor said in March: “We suffer from a housing crisis across the state.”

“It doesn't matter where we are," Scott said, "it seems like there is a need for housing in every sector.”

Scott is also clearly vexed by lawmakers.

In a statement, the governor said: “Our proposals are focused on housing for working Vermonters and families, including a creative new approach to fill what I call the 'missing middle.'

“Because, the fact is, housing that middle-income families can afford is practically nonexistent. And this is incredibly important to remember — and it’s money we needed 'yesterday' — which is why I asked that $70 million of this year’s money be put in Budget Adjustment, so it could be immediately dispersed.

“Unfortunately, due to politics, that didn’t happen, and the Legislature moved the housing dollars into two bills. They’re on a slow path to the finish line and won’t get passed anytime soon.

“Even more concerning is it looks like they’re putting policies into those housing bills that I’ve previously vetoed — two new government registries (short-term rental and contractor registry) that I believe would reduce housing stock and also reduce the number of smaller home improvement contractors.

“Now, as I said, most legislators, including legislative leaders, have said they agree housing is a priority and a goal we share.

“So now is the time for them to prove it and remove the poison pills they combined with the housing dollars they know I care deeply about, and we desperately need.”

Burlington Mayor Miro Weinberger also vetoed a short-term rental registry, which was sustained by a single vote in March. He cited the same reasons as Scott.

Hanford laid out the governor’s priorities as the Legislature heads into the home stretch.

“The governor proposed a comprehensive, strategic housing investment plan using $250 million of federal funds from the American Rescue Plan Act. Unfortunately, three main parts of this plan have yet to be acted on by the legislature.

• We must reinvest and revitalize our currently underutilized housing stock. We know opportunities exist in our historic neighborhoods to provide the affordable housing we need, by improving existing buildings through programs like the Vermont Housing Improvement Program (VHIP).
  • Over 650 units have been brought forward by dozens of property owners wanting to participate in this program, but the additional funding that the governor has called for, going all the way back to last November, was stripped from the budget and attached to other policy bills that need more time and discussion.
• We must support reinvestment in our manufactured home communities resulting in healthier, more climate resilient homes, for a historically underserved population in Vermont.
  • Again, the funding to address this non-controversial, shared priority has been slowed by an un-related, controversial policy discussion in the legislature. It’s important for people needing homes and living in these communities to know: we currently have over 350 vacant mobile home lots that could be prepped and ready to receive new energy efficient homes with this funding.
• We must also assist families whose incomes are just above the affordable housing income limits but are being priced out of market rate housing — the missing middle housing gap.
  • A day doesn’t go by without me hearing of the struggles of a teacher, a nurse, a skilled trade worker or a childcare provider un-able to find a home they can afford to buy. These are essential members of our communities, filling essential jobs, with nowhere to live. Without new programs to address this crisis and encourage the building of more modest homes, Vermont’s affordability and equity gap will only continue to grow.

“These proposed solutions have long been identified, the programs work and have wide support. Yet, these tangible proposals that can make an immediate impact THIS construction season… are being mired in legislative policy bills. Let’s continue to have those important and needed policy conversations, but we must move forward with what we agree on and allocate the federal funding to make it happen as soon as possible.

“I want to say it one more time. We all agree there is a crisis, we have the money to confront it, and we have agreement that these programs can make an immediate impact -- while ALSO setting the table for the transformational change needed to address housing growth in the future.”

Act 250

The Legislature was working through two bills, as of press time, to modernize Act 250.

Everyone seems to want significant changes to the development control law. But what, if anything, will result from all the discussion is very uncertain.

“Is that what’s eating us alive?” AGC’s Wobby asked rhetorically of Act 250.

On the developer side, Act 250 and some local zoning rules have increased the time and cost spent to get anything done. In part, that was the point of the 1970 law: To slow down land development to ensure its best use.

But as housing pressures, costs, and a lack of inventory stack up and keep housing unaffordable for many, pressure is building to make the process more efficient.

The developers have repeatedly said they don’t want to reduce the environmental safeguards and other goals of Act 250, they just want to get their marching orders quicker.

The latest housing efforts are centered on densely populated areas, whether new or refurbished. There is a lot of vacant housing in Vermont because many properties are too run-down to be habitable. The cost of refurbishing can be more expensive than building new.

But focusing housing only on downtowns eliminates many housing opportunities, even in the suburbs.

“We have built this ourselves,” Wobby said of the housing crisis in Vermont. “We have no housing, but until they say we can build new housing we are going to have high costs.”

He cited CityPlace and the massive, demolished lot in downtown Burlington.

The $225 million plan to tear down and build up the old downtown mall began in 2016. The central part of the mall and parking garage were leveled by the summer of 2018 and no progress has been made since. A central feature of CityPlace is over 400 units of new housing.

Governor Scott said at his March 22 press briefing: “We've been asking for modernization of Act 250 for quite a number of years and we haven't seen a whole lot of improvement in that area.

“I’m concerned about some of the activities or lack of activities in the Legislature at this point in time. So there's still time to rebound and get something accomplished, but it's a perennial issue at this point.”

“It's over 50 years old and we need to modernize in order to make it more seamless, more efficient and protect our environment, protect from over development. But we really need some relief right now. We need it for all the money we have coming forward and ARPA and homes and developments, and so forth. So the time to act is now.”

Commissioner Hanford added: “There seems to be some common understanding that Act 250 relief in areas that are already developed, already have the infrastructure, is a great place to build more homes. But we haven't got that relief yet and I really hope that a compromise is reached.”

The Senate has passed bill S234 which would relax development standards in downtown areas that otherwise would take many years to meet sewer and water requirements under current law.

This should help get more housing where people are now living.

The trade-off in the bill is limiting encroachment into green spaces outside of current developed areas and suburbs.

Kati Gallagher from the Vermont Natural Resources Council said, “We must address the current housing crisis and other pressing state needs with smart growth development that simultaneously protects our invaluable rural forests and working lands. The pairing of these priorities is becoming increasingly important as Vermont’s housing shortage is exacerbated due to in-migration since COVID, not to mention the certainty of increased migration to Vermont due to climate change.”

“These policies build on years of work to update and modernize Act 250, including the priorities identified by the Commission on the Future of Act 250. Similar policies have passed the Legislature in previous years. Further, many of these policies were identified as priority recommendations in the state’s recently-adopted Climate Action Plan.

Jamey Fidel, Forest and Wildlife Program Director from VNRC, added, “In addition to thoughtfully addressing the housing crisis, this bill recognizes that Vermont continues to lose forestland every year to development (over 14,000 acres annually). Vermont needs policies that both support smart growth development, and maintain the integrity of our forests.”

Key provisions of S.234 include:

• Supporting smart growth housing development by making state incentives more accessible, particularly for smaller towns;
• Adding criteria and jurisdictional improvement to promote smart growth and forest conservation in intact forest blocks, working forests, and habitat connectivity areas;
• Adding provisions to support wood products manufacturing, including more flexibility for hours of operation and the delivery of wood products and wood heat fuel;
• Clarifying how Act 250 applies to commercial development in one-acre towns (municipalities without permanent zoning and subdivision regulations) so that jurisdiction is consistent with the recent Snowstone Vermont Supreme Court ruling; and
• A report on how Act 250 should be applied to agricultural businesses, including examining different levels of review for accessory on-farm businesses.

“S.234 … takes a thoughtful approach to promoting smart growth housing development, maintaining our rural forests and working lands, and fostering climate resilience.”

The bill, as of this writing, is headed to the House for consideration.

Meanwhile, the House has passed its own Act 250 bill, H.492.

The headline-catching feature of it would be to bring back the Environmental Board, to be called the Environmental Review Board to hear appeals instead of having the legalistic Environmental Court. This is intended to make the process more accessible.

Also supported by the VNRC, it would:

• Strengthen Act 250’s review of natural resource impacts by bringing back an independent Environmental Review Board (ERB) to administer the Act 250 program, decide Act 250 appeals, and better coordinate the District Commission review processes;
• Builds on the recommendations of the Commission on the Future of Act 250 to enable the new ERB to better address contemporary environmental challenges, including forest fragmentation and climate change; and
• Improves the process for hearing appeals of District Commission decisions by creating a fair citizen friendly appeals process.

Homelessness

The General Assistance program went from housing several hundred homeless people in the state’s hotel/motel program to about 2,000 during the COVID-19 pandemic.

Scott and his administration insisted that this was unsustainable on a human, fiscal and practical level. People need permanent housing, the money eventually will run out, and the hotels wanted those rooms returned for tourism.

In addition, the Holiday Inn in South Burlington, which was an important property in support of the GA pandemic response, closed for renovations.

With the millions of dollars coming from the federal government, the state has made significant progress in moving away from the GA program and toward permanent housing.

"Obviously, in the beginning, our goal was to take care of those who need it most," Scott said. "We wanted to make sure that people could transition from one-time housing needs to something more permanent. Temporary housing wasn't the answer — isn't the answer — for that population. We want them to have something they can count on.”

Hanford said: “This is a bright spot, really, where we have invested a lot of funding and we have reached agreement with the Legislature and a lot of housing partners.”

“Last year," he added, "there was about $150 million put towards affordable housing development largely to rehouse folks exiting homelessness. This year, there's already been $50 million approved for that same effort, with another $50 million sort of in the hopper. So out of the $250 million that the governor put forward, about $200 million of that has been put towards affordable housing, stressing the need for the most vulnerable folks exiting homelessness in recovery. And we're making progress.

"Over 800 units have already been built. Another 800 are already in construction and about half of those are serving folks exiting homelessness. The latest numbers show we've been successful in exiting about 1,300 families from homelessness into permanent housing.”

Former Vermont Human Services Secretary Mike Smith said last summer that the number of households in need of shelter approached 2,000 (about 2,300 adults and 400 children) at the peak of the pandemic.

General Construction

While consternation over affordability, Act 250 and ARPA financing are ongoing, the meat of the construction season is about to begin.

“We’re pretty much on schedule,” said Associated General Contractors' Wobby.

There’s a lot of money for civil construction for roads and bridges, he said, and there even appears to be enough workers.

The state and Associated General Contractors have been very aggressive in recruiting tradespeople. The AGC alone has spent about $50,000 on recruitment for this season.

On April 26, the group will host what it calls the Vermont's Largest Career Fair at the Essex Fairgrounds.

Wobby said they’ll fill all 150 booths with employers — not limited to just construction. He anticipates 1,200 attendees. Tech, sales and marketing, services, communications, criminal justice and health care will all be represented, he said.

The Vermont Department of Labor adds training and internship support, and provides assistance for those who may have personal roadblocks, like education or life circumstances.

In just the construction field, pay is good. Wobby said he is seeing hourly wages for beginning positions in the range of $17 to $18 for carpenters, $20 to $22 for roofers, about $25 for equipment operators, and $18 to $20 for flaggers.

“If you want to be hired, you will be hired on that day,” he said.

Since the pandemic began, the state has lost 26,000 workers. Wobby estimates that about 6,000 had to leave because of child care needs. The other 20,000 or so “just left.”

But Wobby sees improvement on the construction side here in Vermont and is confident there will be enough labor.

His organization's national counterpart, the Associated General Contractors of America, reports that Vermont has gained relatively more trade workers than nearly any other state.

North Carolina added the most construction jobs between December and January (2,900 jobs, 1.2 percent), followed by Ohio (2,800 jobs, 1.2 percent increase) and Mississippi (2,100 jobs, 4.5 percent increase).

Mississippi had the largest percentage gain, followed by Maine (2.2 percent, 700 jobs) and Vermont (2.0 percent, 300 jobs).

And over the last two years (Feb 2020 to Jan 2022), Vermont has increased construction employment 1.3 percent (rank 21) for a total of 15,500 workers.

“It’s time to get back to work and come back to work,” Wobby said. And their efforts are paying off in getting people to the contractors’ front door.

“We’re in a very good place,” Wobby said.

VermontBiz reached out to contractors and service providers who are, in many cases, literally in the trenches.

“Talent and subcontractor availability remains of critical importance and is key to sustaining and growing all work programs in the private and public sector," said Jay Fayette, chief executive officer of PC Construction in South Burlington.

It’s coming at a price, of course.

Wages are up, as are the costs of materials, fuel and trucking.

“The supply chain is in a serious state; all materials and raw goods are impacted and will continue to be for some time,” Fayette said. “Additionally, forecasting inflation and escalation of fuel, materials, suppliers, vendors and labor remains the greatest challenge for PC. Project owners are faced with these same challenges as they work to make their project pro-formas and return on equity (ROE) work. We are in very dynamic and challenging times for all parties across the board.”

Photo: PC Construction crews are putting the final touches on the six-story, 125,000-square-footOne Spruce Peak project in Stowe. The newfacility boasts acollection of ski-in/ski-out residences, townhomes and penthouses, all with best-in-class materials and finishes. Photo: Ryan Bent Photography.

Wobby said he’s excited with the $200 million the state is getting for infrastructure improvements from the federal government, with $1.5 billion earmarked over five years.

But he is concerned with overall inflation. If costs go rise 20-30 percent, the value of that new federal spending might only equate to breaking even. Interest rate hikes will increase the cost of money. The Fed has already raised rates by 25 basis points (one-quarter of 1 percent). The Fed is warning of five or six more such increases this year.

And then there’s the lag time. Even something as simple as lamp posts held up the completion of some projects last year, he said.

“We’re sitting here talking about the best of times and the worst of times,” he said.

The best times is for the ability to fix and upgrade roads, bridges, culverts and wastewater plants.

Wobby warned against lowering or getting rid of the gasoline tax for the sake of reducing fuel costs, as some other states have done in response to the Russian invasion of Ukraine, and the subsequent oil price increases.

He said the state needs those tax revenues in order to meet the federal match just to get the full value of those federal transportation dollars.

The rise of electric vehicles will also start to impact those revenues, Wobby said. So there likely will have to be some sort of tax or fee on them to make up for it.

While the focus of the industry is on housing right now, he does see some demand for office and commercial space in places like Franklin, Lamoille and Rutland counties.

According to PC Construction's Fayette, Vermont's construction outlook is strong. "At PC Construction," he said, "we have exciting work continuing on The University of Vermont campus, the cutting-edge BETA Technologies Manufacturing Facility, Stowe Mountain Resort and very complex work at the Southwestern Vermont Medical Center, to name several, in addition to our continuing work with GlobalFoundries and Green Mountain Power.”

PC is the state’s largest general contractor.

Fayette echoed the opportunity of many others that ARPA money offers a significant opportunity.

“As a water and wastewater contractor along the eastern seaboard,” Fayette said, “PC is uniquely positioned to support the infrastructure construction needs of the communities we serve. We recently received our seventh national award for the Atlanta Water Supply Program, helping secure safe and clean water for the city of Atlanta for years to come. We are anticipating that this type of project will be replicated throughout the country where fresh water supply becomes a more challenging proposition. We also believe that New England and the Northeast states will see significant infrastructure projects and improvements in the coming years.”

Other contractors and service providers weighed in.

Mel Baiser a partner and strategic director of HELM Construction Solutions in Brattleboro, said: “Construction is booming in our region. It's very busy. Most of the contractors, designers, engineers, consultants, etc, are booked or overbooked for the time being. Couple this with material price volatility, labor shortage, and the pandemic, it is also a very stressful time for folks.”

Federal funds were crucial, he said: “We have seen our clients (builders, design builders) benefit directly from the PPP loans. In some cases, access to these funds kept companies afloat or kept workers employed. However, many small contractors did not necessarily have the skills or capacity to access these loans.”

Like Wobby, he sees the current landscape as mixed, especially with the workforce issues: “This is the number one struggle for most of our clients — not only in Vermont but across North America. The demand is there and the companies cannot hire enough skilled carpenters, site supervisors, project managers or locate the available trade partners to keep up with the workflow. In our state, we have seen a surge in people moving here from out of state. They have purchased land and secured many of the local builders, designers, trade partners (many of whom are booked several years out). On the one hand, this is great for these small companies knowing they have secured good paying work for years to come. On the other hand, it has made it near impossible for locals (or late arrivals) to find contractors or subs for anything from a leaky faucet to a new home. It is also driving up the market to further exacerbate our state's housing crisis.”

Offering a word of advice, “We are encouraging our builder and architect clients to see this moment as a marathon, not a sprint. It's an opportunity to establish good systems and procesess for potentially less busy times to come.”

HELM, with offices also in Montpelier and out of state, seeks to advance high-performance building practices and triple bottom line business principles.

“The upcoming season looks like it will be busier than last year due to the work I have put in over the winter. I'm ready to be busy again (Winter is a very slow time for my company),” said Matt Dodson of Dodson Drone Solutions in Barre.

Dodson appreciates the impact ARPA will have, but lamented the inflation: “The cost of gasoline will be tough on my business. I drive a truck most of the time to haul around my equipment, and 11 mpg at almost $4.50 per gallon, is going to hurt my profits. I have purchased a small 30-plus mpg vehicle to help combat the impact of inflating fuel prices, but this vehicle will not be able to be used 100% of the time.”

Steven L Richard, president of Richard Electric in Wilder, was more circumspect for the upcoming season: “It looks like we will still have a shortage of skilled, licensed electricians. It looks like the prospects for new work will be diminished due to consumer cost increases due to the destruction of our domestic energy sector by the federal government. This will also increase our costs of doing business and force us to raise our prices again to our customers.”

He said the federal government has picked “winners and losers” as the pandemic played out, with winners being union jobs, and the losers being everyone hurt by the rise in inflation, especially related to the increase in petroleum products.

Nils Shenholm, founder and principal of Solhem Sauna in Moretown, is doing well but is also feeling the workforce crunch (“impossible to find qualified help.”)

“All price increases make quoting work impossible in some categories,” he said. He blamed the oil companies for the energy cost spike.

He added: “Stop buying imported junk on the internet; support local vendors instead. The web has done more to trash the sauna business than anything else out there. American consumers are choosing products on price alone; there is no service on web-based purchases, but that message is not always apparent.”

Justus Cameron, vice president and project manager at McKernon in Brandon, said: “It’s a very busy construction season.”

The federal stimulus has not had much impact because his company specializes on the high-end residential sector.

But like everyone else, they have felt the effects of the tight workforce.

“It’s been a struggle, finding experienced employees. For new hires, (it’s been) nonexistent.”

As to supply-chain issues, he said, “We have been able to substitute out some things for others that are available to keep projects moving, but it continues to get harder and lead times keep growing.

“The inflation of building products has been unpredictable and outrageous,” he said. “We have projects that are six months to a year out that need to secure funding and lock into fix contracts, but that is just about impossible these days. We have had to re-run materials cost at the start of construction with some homes jumping upwards of $150,000 to $200,000 in material cost changes.”

CityPlace

“CityPlace will happen at some point in time,” AGC’s Wobby said.

Redevelopment of Burlington's downtown mall, which was largely demolished in 2018 and still sits vacant, could see renewed life this year now that the last of the tenants are moving out.

LL Bean is relocating to Williston in June. Starbucks left last October. The other internal tenants are now gone.

Meanwhile, financing has been an issue since the project was first proposed nearly six years ago.

Photo: CityPlace. VermontBiz photo.

CityPlace developer Don Sinex told VermontBiz in mid-March via email that "we are in the application process now and expect to hear about a final loan in about two weeks or so."

As for the start of construction, he said, "Hopefully, six months or so, but it depends on a few factors," with completion "24-30 months after the start."

And the long-lingering permit issues? "Yes, all issues and appeals to the permit have been resolved," he said.

Increasing costs and a tight labor market? "These factors can increase cost and extend the construction timeline; we are studying the likely effect on the project now."

He explained some of the significant changes from the original plans:

"Retail is non-mall in character, you enter from a street. No office space; all with street retail and a garage. 9-10 stories."

In keeping with the post-pandemic reality, new office space has little value in the Chittenden County area.

Sinex announced the original plans for a $225 million redevelopment in 2016. The central part of the mall was then demolished and the project stalled as financing, the economy, challenges to the plans and permits, and the pandemic forced several delays.

Going forward, the new $175 million concept will rely less on office space and more on apartments. With 20 percent of the units "affordable," Sinex anticipates 426 apartments and eventually 42,000 square feet of retail, to be built out in three phases.

The CityPlace developer has committed to pay the Vermont Prevailing Wage for construction workers.