Editor’s note: Art Woolf is an associate professor of economics at the University of Vermont. He served for three years as state economist for Gov. Madeleine Kunin beginning in 1988.
[H]ousing is the largest single item in most family budgets. The U.S. Department of Labor estimates that housing accounts for one-third of the average American household’s total spending. That includes the cost of rent or mortgage, utilities, maintenance, furniture, as well as other items, but even when we just look at rent or mortgage payments, one dollar out of every five dollars of expenditure goes to housing.
Housing is costly, but how expensive is it to buy a house in Vermont? According to the U.S. Census Bureau, the median value of a Vermont house was $221,000 in 2017. The Vermont Tax Department reports the average price of a house sold in Vermont that year was about $200,000.
House prices haven’t changed much this decade. The Census Bureau numbers show a 4.8 percent increase in price between 2010 and 2017, and the Tax Department’s numbers are very close to that. The Federal Housing Finance Agency, looking at the price of houses actually sold, reports a larger 9.5% increase. All of those are low growth rates over an eight-year period. Given that prices overall have risen by 15 percent, after adjusting for inflation housing is cheaper today than it was in 2010.
That doesn’t answer the question of whether housing in Vermont is cheaper or more expensive than in other states. Nationally, the median priced house is worth about $193,000, nearly $30,000 less than in Vermont, so by that measure Vermont’s houses are expensive.
One way to put that in a better context is to look at the ratio of home prices to income. In Vermont, the median priced house costs 3.8 times median household income, which ranks Vermont 12th highest in the nation — and that’s a high ranking we don’t want to have.
Comparing Vermont’s home value to household income ratio
Chart by Felippe Rodrigues/VTDigger.org
Vermont is an average income state with high, by national standards, housing prices. Within New England, only Massachusetts has a higher ratio of housing value to income so we are not very competitive even within our region. Housing is cheaper, relative to income, in Maine, New Hampshire, Connecticut and Rhode Island. And for those Vermonters considering moving to warmer climates, it’s also cheaper in Florida, the Carolinas, Kentucky and Tennessee, all of which also happen to have lower property and income taxes than Vermont.
There are only two ways, mathematically, to reduce that ratio — that is, to make housing more affordable relative to our incomes. Either increase income or reduce house prices. Although increasing incomes is a goal of every governor, Democrat or Republican, it is a very difficult goal to accomplish with policy levers.
Reducing house prices is easier. Policymakers can’t — and probably don’t want to — reduce construction worker wages. At any rate, Department of Labor data shows wages for plumbers, electricians and carpenters are higher nationally than in Vermont, so high construction worker wages cannot explain why Vermont’s houses are more expensive than the national average.
Perhaps it’s the cost of building materials, but it is unlikely that lumber, pipes or wires are more expensive here than elsewhere. Those are all items sold in national markets at similar prices.
That leaves only the cost of land as the driver of Vermont’s high housing prices. That includes not just the land itself, but also the cost of getting the land ready for construction. And a lot of that involves the cost of development — the permits, satisfying zoning and other regulations, and a host of other factors that contribute to making a piece of land developable.
Vermont has lots of land. After all, we are a rural state, which by definition means we have a lot of land and low population density. Developed building lots should be cheaper than they are, and reducing their cost would go a long way to making housing more affordable for Vermonters and for people thinking about moving to Vermont. That would help make Vermont a more attractive place to live, work, and grow jobs.
