With legislation aimed at updating the state’s keystone land use law moving through the State House, contractors discuss Act 250’s effect on the industry and their thoughts on the housing crisis
by Olga Peters, Vermont Business Magazine Depending on who you ask, Vermont needs anywhere from 3,500 to 7,000 new housing units to meet its immediate needs.
Both estimates, however, exceed the amount of new housing built annually in the state.
Commissioner Alex Farrell, Department of Housing and Community Development, acknowledged a disparity between the amount of effort the state and communities have put into housing and the amount of new housing coming online.
After the 1980s and 1990s, he said Vermont stopped producing housing for various reasons. Some reasons are within the state’s control, and some are not. He said the state can control the regulatory environment that fosters more housing.
“We just pumped $500 million of public funding into the system in the last two years, and we still only average 2,300 units a year,” Farrell said. “We need that to be more like 4,000 to 4,500 units a year so that we can meet those workforce goals, let our population continue to rise a little bit, and we're just not doing it.”
At the center of the conversation is Act 250, the state’s land use and development law, enacted in 1970. Efforts to update the law have been going on for years.
During this session, lawmakers are considering revisions to several bills. As of March, two such bills, H.687 and S.311, were wending through the various committees.
A working group that met last summer provided the foundational ideas that influenced these bills.
The Natural Resources Board convened the working group to develop recommendations for updating Act 250. The group included housing developers, environmentalists, planners, and other stakeholders.
Despite sometimes sitting on opposite sides of construction projects, the group members agreed that reforms should increase protections for natural resources and environmentally sensitive areas, support development in compact areas, allow for growth in rural communities, and streamline the permitting process.
While the finer details are still in play, one structure under consideration is a framework of tiers that would determine how Act 250 applied to a project. Each area of the state would be designated a different tier.
For example, the proposed tier 1 would apply to downtowns and villages determined to have “capacity for growth.” These areas would receive a partial or complete exemption from Act 250 review. Meanwhile, critical environmental areas, tier 3, would trigger automatic review.
Good intentions and frustrations
Many in the development world feel Act 250 started with good intentions but has outlived its purpose. They say the law adds unnecessary expense, time, uncertainty, and confusion to any project it touches.
“Unless you see a drastic change in Act 250, you're going to see little or no change in the field,” Richard Wobby, Jr., said.
Its permitting process increases costs by 18 to 20 percent in a building environment where labor and materials costs have also increased. The permitting process often duplicates permits required at the municipal level, said the executive Vice President of the Associated General Contractors of Vermont.
“So we have the state deciding whether that development really was necessary, whether we're going to have ample parking, whether we’ve got runoff, whether it's solar or carbon neutral - I don't care,” Wobby said. “You’ve got people that are homeless today.”
Matt Wheaton said, “The Act 250 process can really delay projects, and time kills deals. It's just a fact.”
“When developers come from outside New England to try to build, they are dumbfounded at the pricing up here,” added Wheaton, Executive Vice President of DEW Construction, which has offices in Vermont, New Hampshire, and Maine.
For Douglas R. Farnham, chief recovery officer with the state Recovery Office, relaxation of Act 250 rules is critical to the state’s long-term recovery from last year’s flooding.
In his opinion, the housing crisis ratcheted up the flood’s impacts.
“We did not think we were going to be facing another flood of this magnitude 10 years after Irene,” Farnham said. “Housing made this disaster so much worse than it needed to be.”
The Framework
“What I'd say, and what the administration's messaging has been, is that we're excited about the sort of tiered framework that's being discussed, which is moving Act 250 jurisdiction more to a location-based jurisdiction,” Farrell said.
As of March, the tiers are understood as a “broad, vague agreement,” Farrell said.
In his view, however, how Legislative committees are implementing the agreement “is not consistent with what I think a lot of stakeholders envisioned.”
Farrell believes the updates to Act 250 should include the following:
- Setting minimum standards for density. For example, changing parking bylaws and allowing for denser buildings in communities with municipal water and wastewater.
- Setting timelines for municipalities and development review boards to review applications.
- Expanding the state’s financing mechanisms, such as providing exemptions on property transfer tax for property owners who convert a blighted building into middle-income housing. The state also plans to continue funding successful programs such as the Vermont Housing Improvement Program (VHIP).
- In light of the time it may take to complete the maps and planning work that would designate the tiers, Farrell is calling for a “five-year runway” so communities can start housing projects while the maps are finished.
- Improving the Act 250 appeals process. A common complaint among private and nonprofit housing developers is how a few opponents can stop a project.
“We shouldn't be letting a small handful of residents come out of the woodwork and stop a really popular project that's going to provide the middle-income and low-income housing we desperately need,” Farrell said.
Contractors have said that appeals can turn a six-month permitting process into 24 months.
Farrell said, “We shouldn't try to fool ourselves into saying that if we carve out Act 250 exemptions, developers will have their hands totally untied and will be able to give us what we need.”
Wobby supports the concept of development centers with easier permitting.
“If you've already got the City of Barre with their own permitting process to allow for building, I'm not sure the state should be jumping into second guess,” Wobby said.
The math that isn’t working
In Bob Stevens’ opinion, Vermont’s relatively low wages are at the root of the state’s housing crisis.
Stevens is the president and principal of M&S Development, which provides development services from its offices in Brattleboro. He also serves as president of engineering and architecture firm Stevens & Associates.
According to research by the Public Assets Institute (PAI), Vermont’s cost of living is comparable to the rest of New England. Wages, however, tend to lag.
In a 2022 blog post Blame wages not inflation if Vermont is ‘unaffordable,’ PAI noted that Vermont’s prices were in line with the US average. Average wages, however, ranked fifth in New England and 33rd in the US.
PAI is a fiscal research nonprofit based in Montpelier.
For Stevens, trying to build housing aimed at Vermont's middle-income households, building costs are higher than developers can charge for rents. Repaying project debt and investors or maintaining the building is only feasible with sufficient rental revenue.
The Urban Land Institute defines workforce housing as affordable housing for households earning between 60 and 120 percent of an area’s median family income (MFI). People earning in that range may not qualify for subsidized housing.
Building a project budget that matches costs and rents means that he would need to charge rents considered affordable to people earning 190 - 200 percent of MFI.
Absent higher wages, subsidies are a way for developers to close the gap between costs and rents.
In Steven’s experience, subsidy programs, such as the federal 4 percent Low-Income Housing Tax Credits, help close the gap between costs and rents. However, the federal programs base the credits on a percentage of an area’s median income. As a result, the tax credits go farther in wealthier communities with higher MFI.
He believes this situation can have the unintended consequence of benefiting wealthier communities more than poorer ones.
The Vermont Housing Finance Agency (VHFA) manages Vermont’s tax credit programs.
In an email, Leslie Black-Plumeau, research and community relations director, wrote, “Because 4 percent credits are virtually unlimited in Vermont, we do not need to turn down any eligible applications for them, although developers have a hard time making them work without other public funding.”
The 4 percent tax credits were underutilized in Vermont at one point because they provided less equity than a counterpart program of 9 percent credits.
Black-Plumeau wrote, ”We are glad to be able to use 4 percent housing tax credits more frequently since it takes all of the tools we have to move the needle on expanding the availability of affordable housing.”
“We often see developers apply to use 4 percent tax credits in regions of the state with higher rents because 4 percent credits have lower value than 9 percent credits,” she added. “The areas with higher rents allow projects to borrow more and use loans to cover more of their development costs.”
The 4 percent LIHTC program allows for rents up to 60 percent of MFI. Based on area incomes, a developer using the 4 percent in Chittenden County can charge a single person up to $1,278 a month for a one-bedroom. In Windham County, the same one-bedroom maxes out at $1,020.
Stevens said those differences in rent can make or break a project. Still, he believes the LIHTC provides the necessary funding. He wishes the program allowed rents that households earning up to 80 percent of MFI could afford.
Mel Baiser of the consulting, coaching, project management, and training firm HELM Construction Solutions agrees there is a gap between costs and rents.
Baiser said HELM will provide technical assistance and training to aspiring small-scale developers across the state focusing on creating "missing middle" housing - 1-4 unit infill projects in our downtowns and villages.
Co-founder Kate Stephenson served on the state’s Homes for All Initiative technical advisory committee.
To learn more about the initiative, visit https://accd.vermont.gov/homesforall
“One of the clear gaps is the disconnect between the cost of building housing and the assessed value and market rates for rental housing,” Baiser wrote in an email. “Basically, a pro forma is unlikely to pencil out without significant grant subsidies in the form of cash grants or below-market interest rates.”
HELM helps to connect the general contractors/builders the company works with in Vermont to financial resources.
“The state has made some important moves around regulation (for example, last year's HOMES Act) and there is still more to do in terms of Act 250 reform to make the permitting process easier for folks to navigate,” they wrote.
Farrell said people can view Act 250 through many lenses: housing, environment, planning, and conservation. Sometimes these
“I obviously see it through the housing lens and everybody I've talked to employers, homeless advocates, educators, everyone says, Yeah, I'd rather you look at it through the homeless or through the housing lens,” he said. “But there's a lot of competing interests out there. So that's a challenge.”
To see a chart of Vermont counties, MFI, and housing types, visit www.vhfa.org/sites/default/files/documents/multifamily/2023_30-50-60-80.pdf
Novogradac shares a good primer on the differences between the two LIHTC programs on its website. The company provides various professional services to the affordable housing, community development, historic preservation, opportunity zones, and renewable energy fields. www.novoco.com/resource-centers/affordable-housing-tax-credits/about-lihtc
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