It can cost more to build a house in parts of Vermont than the finished house’s appraised value.
“It’s too expensive to build a modest home that’s affordable to Vermonters,” Maura Collins, executive director of the Vermont Housing Finance Agency, told the Senate Economic Development, Housing and General Affairs Committee on Tuesday.
In some communities, it costs $425,000 to build a home that is going to appraise — a professional’s valuation of the home — for only $375,000, Collins said.
Michael Monte, who leads Champlain Housing Trust, recently encountered this problem in Winooski. The nonprofit, which develops affordable housing, built condos in which the largest unit was appraised at $350,000.
“And our cost to construct was more than that,” Monte told VTDigger. “These are three-bedroom two-bath. They’re decent-sized homes. They’re 1,300 square feet homes.”
Severe supply chain issues during the pandemic, especially with lumber and steel, have made the cost of building homes extremely volatile, Seth Leonard, managing director of community development for the Housing Finance Agency, told VTDigger.
In the past four months, the cost of lumber has added more than $18,600 to the cost of a new single-family home nationwide.
Sixty-four percent of developers surveyed by the Housing Finance Agency in December reported that they abandoned or substantially delayed new projects during the pandemic because of costs. They cited the cost of materials as the leading reason, though they also cited the availability of labor, the cost of getting permits and shifts in market demand.
Those price swings pose a risk for home builders who do not know whether they will be able to finish a home under the price they have already agreed to charge. So, builders may opt to focus on building more expensive homes for buyers for whom cost is not so much of a problem, Leonard said.
Leonard said he is also hearing from banks that are being asked to adjust construction loans because builders are not able to finish homes for the cost agreed upon when they took out those loans.
The cost of new housing in Vermont comes as all housing prices are jumping. In the past three years, the price of homes sold in Vermont has gone up by 37%, according to the Scott administration’s housing proposal.
“Even if it’s in a moderate sales price range, but there are 17 bids on the home, and five or six of those bids are above asking price substantially and may be over what the home actually ends up appraising for, somebody who’s using a down payment assistance program or a government loan won’t be able to compete in that market,” Leonard said.
The Scott administration is asking for an additional $5 million in the adjusted budget for the rest of this fiscal year, which ends June 30, for a pilot program to address this gap and to provide money to rehab older modest housing so rundown that it cannot be sold in its present shape.
The money would come from federal funds Vermont received under the American Rescue Plan Act.
The program would subsidize homes being sold to households making between $47,000 and $115,000 a year. The money would subsidize 35% of the cost of building a new home or rehabbing rundown housing that could not qualify for a mortgage and could be on the verge of being unlivable.
“I just got off the phone with a bank who reflected that ‘we’re just seeing some homes come in that we can’t approve mortgages for because of outstanding needs, but it’s the only thing that’s affordable in our area,’” Leonard said.
Housing Commissioner Josh Hanford used the example of someone who has found a house priced between $100,000 and $140,000 and qualifies for a mortgage.
“As soon as they go get the home inspection, the home inspection has so many deficiencies that the lender will no longer honor that mortgage because it needs another $100,000 invested in the home,” Hanford said.
The pilot program would cover the cost of refurbishing the home.
The problem in Vermont is not just that construction of new homes has been too slow, Leonard said, but also that older homes are becoming unavailable because they are not in good shape.
The pilot program would focus on inspiring builders and developers to build or do the rehab, Leonard said.
Other programs already try to help home buyers. This program would target builders.
“This is a supply-side proposal to build more homes, literally to subsidize contractors, home developers and builders to build more homes at the price point that working Vermonters can afford,” Hanford said.
Scott may not get the funding he seeks for the pilot program.
In Tuesday’s hearing, Sen. Michael Sirotkin, chair of the committee, said he was skeptical about appropriating the money through the quick process of budget adjustment rather than moving it through in a more deliberate way.
“I would stress that this is unusual times,” Hanford said. “We have a highly unusual housing crisis and by making some funds available right now in this pilot, we could see support for homes going to construction as early as this spring.”
