The Senate Economic Development Committee heard from Maura Collins on Wednesday about Low-Income Housing Tax Credits (LIHTC) funds.
- VHFA is proposing a revolving loan fund as a less-complex alternative to LIHTC.
- Employers from all industries are getting squeezed by the housing crisis.
- Construction costs have doubled since 2016.
There are two kinds of LIHTC funds, one is distributed every April and is very competitive (covers 70% of building cost). The second is distributed every month but only covers about 35% of the building costs. Contractors have to "cobble together" several sources of funds to cover the cost of construction in either case.
The program is the most important resource for creating affordable using in the US today, according to Collins. It was created by the tax reform act of 1986 and gives state and local allocating agencies the equivalent of approximately $8B in annual budget authority to issue tax credits for the acquisition, rehabilitation, or new construction of rental housing targeted to lower-income households.
The program is very complex but is designed to be an onramp for housing. Senator Clarkson noted that there is a lot of money being given to private for-profit companies, and asked what we get in return. The response from Collins was that we get lower income housing and that 25% of the housing is for the homeless persons and some of it is subsidized. We sometimes are not able to take advantage of the available credits and don’t fully utilize the available funding.
Peter Kahn (a developer in Vergennes) is working on a 50 single family home development that was started in 2016 without any subsidies. His intent was to reach the middle market moderate-income (around $291,000 single family homes) with neighborhood roads, sidewalks, water and sewer, and natural gas. Over the next several years, prices went up modestly but they stayed in $300,000 range for young couples, then Covid happened. He described it as unbelievable how much price change. All materials doubled in cost and labor got more expensive. Plumbers, in particular, almost tripled. Electricians almost doubled. Just building the same house they did in 2016 now costs $600,000. They are still making sales, but the demographics of buyers changed. Mostly to retirees who are paying cash and some that are second or third homes. Their neighborhoods are no longer full of vibrant young families.
About a year ago they started pursuing a multifamily dwelling in Vergennes. In the rental market, the subsidies did work (he noted they were not very profitable but still in the black). He prefers to use Community Recovery and Revitalization (CRRP) grant from economic development, but the revolving loan fund will also help and will keep development going. His company keeps everything tight, but he is "blown away" by the cost of some of the projects he has heard about.
Shawn Tester (CEO, Northeastern Vermont Regional Hospital) shared that he never realized that he would be dealing with housing issue. In the Northeast Kingdom there are lots of job opportunities and the hospital has 10% of positions open. He was adamant that they simply do not have the population in NEK and they need to attract and house new people.
He had found a perfect candidate who said he didn’t think he could find a place to live. The position was a mid-career, making over $150,000 a year and couldn’t afford housing. They lost at least ten candidates who declined or backed out of the job offer. Half of open jobs are nurses who make $77,000 per year. He challenged the Committee to pretend they didn't already live here and to evaluate the job offer the same way his candidates did and see what conclusion they come to.
Helen Reihle (Chair, South Burlington City Council) documented her comments in a letter to the House Commerce Committee and the Senate Economic Development Committee. She testified on the Senate's Omnibus Housing Bill and H.68. The city strongly supports the goals and many of the provisions of these two proposals. South Burlington has been actively working to address the housing shortage by developing its city center, where UVM and the UVMMC are joining Cathedral Square and the Champlain Housing Trust in developing much-needed housing.
The city invested $1M in American Rescue Plan Act (ARPA) funds to help develop more affordable housing. There are approximate 1,000 permanently affordable home in the city, 169 of which were constructed or converted between 2016-2021 as part of the building homes together campaign. Another 180 have been approved and are under construction or have already opened their doors since then. The city is committed to directing housing into places where it is most appropriate and consistent with small growth principles. The city expects future investments in hosing to be made through well planned-infill and with zoning regulations that promote compact development and denser development along public transit routes.
At the same time the city is acutely aware of the climate crisis and the vital need to protect the meadows, forests, grasslands, farmlands and wetlands that sequester carbon, provide a buffer against flooding, filter pollutants before they can enter Lake Champlain, and provide other benefits. They are also keenly attuned to a looming fiscal crisis since population growth requires additional infrastructure, equipment, and city personnel. This is especially true for the city schools.
As such the city is deeply dismayed at the prospect that the careful balance they have struck in light of these imperatives could be overridden by state legislation that is not attuned to our local geography or local planning of city traffic patterns and public safety issues, natural resources, climate emergency risks and challenges and fiscal concerns. They are concerned that, even a narrow reading, the two bills would significantly undermine the critical natural resource protection defined by the city and undermine the careful zoning decisions that South Burlington has made to balance competing interests. The criteria in the bill will result in more suburban sprawl in the city.
Zak Hale (Partner, Hale Resources LLC) shared that they are a family operated real estate development and property management company, Their mission is to purchase, renovate and maintain property to provide sustainable high-quality housing in Southern Vermont. The company faces challenges with their projects given the increase in cost of construction, financing, and operating costs. Hale highlighted some of these challenges:
- Regulation – Act 250.
- Funding – each funding agency has its own policies and thresholds, separate applications.
- Operations – current solutions close the funding gap but reduce rental incentives which establishes a gap with new construction projects.
Hale responded to a question from Senator Brock regarding the lower cost of property renovations by private developers compared to non-profits. He noted the lower cost of property renovations by private developers was due to the focus on short-term vs long-term profits, and the efficiencies achieved through reduced overhead. By serving as the owner, developer, construction manager, general contractor, and clerk of the works they are able to reduce overhead costs nd increase efficiencies.
He repeated what others have pointed to, saying that they are consistently seeing people trying to move to the area who cannot find housing and as a result do not move to Vermont.
In fact, they have employers looking to master lease units months before they need them to make sure employees moving to the area have a place to live.
He spend time running scenarios for the proposed revolving loan fund introduced by the Vermont Housing and Finance Agency and wanted to share a few ways he thought this could be an effective tool:
- It reduces the barriers of entry for new developers by allowing inexperienced LIHTC developers to leverage the funding of other agencies.
- For redevelopment projects, it provides substitutes for other types of funding that restrict rents to a point that make projects unfeasible.
- It provides an opportunity to purchase property from older Vermonters, who want top dollar for a decrepit property, while reducing debt service which allows for cashflows to be reinvested.
Programs like this reduce barriers of entry for those subsidies and provide a means for other developers to join in on becoming part of the solution to overcome Vermonts housing challenges.
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