[Hpn] Home sweet, unaffordable home: Hot housing market keeps prices out of reach for many Vermonters; Vermont Guardian; 8/19/2005

Morgan W. Brown morganbrown@gmail.com
Fri, 19 Aug 2005 16:11:55 -0400


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Friday, August 19, 2005Vermont Guardian[Weekly statewide newspaper]Home sweet, unaffordable home: Hot housing market keeps prices out ofreach for many Vermonters:http://vermontguardian.com/local/0904/HomePrices.shtml
By Shay Totten | Vermont Guardian
posted August 19, 2005
Jayne Rivera considers herself one of the lucky ones. It only took herthree years to shore up her finances after a divorce, and then onlysix months to find a house for herself and her two sons.
In the year since she bought her Lyndonville home, it went from$90,000 in appraised value to $115,000.
"I never thought I would be able to afford to buy my own house," saidRivera. "When I was stuck in the renting scene, it always felt like itwas too unattainable."
Rivera turned to the region's nonprofit housing organization, GilmanTrust, and its Neighborhood Works program. The program works withpotential homebuyers to help them clean up bad credit, budget theirincome, save money for a down payment and qualify for a mortgage.Rivera qualified for a mortgage through the nonprofit Vermont HousingFinance Agency, which allowed her to get a better interest rate thanif she had gone through a conventional lender.
While home seekers in other parts of the state may envy Rivera'spurchase price, she and others are quick to point out that wages arenot on a par with those in other parts of the state. "I know peoplewould like to buy a house for the price I paid, but we wish we couldget the kind of wages they get in Chittenden and Franklin counties.The job market is really slow up here," said Rivera.
Locking up the market
According to affordable housing advocates, Vermont's housing stock isincreasingly becoming unaffordable for those who live and work here.Even business leaders are beginning to see the skyrocketing prices asa potential impediment to economic growth, because people hoping tomove here and younger workers fresh out of college can't afford thereal estate.
According to the 2005 update of "Between a Rock and a Hard Place," areport published by the Vermont Housing Coalition, the median purchaseprice for a home in Vermont reached $165,000 in 2004, a 67 percentincrease since 1996 and a 10 percent jump from 2003. To purchase thathome, a Vermont household would have to earn more than $62,000annually. But the median annual Vermont household income is just over$43,000 求 enough buying power to afford a $114,600 home.
And, it's not just in the Northeast Kingdom where people are facingthis widening gap between low and stagnant wages and increasinghousing prices. In Burlington, the Burlington Community Land Trust'sHomeownership Center is seeing dozens of families qualify for amortgage and then not be able to purchase a home because nothing onthe market fits their price range.
"They don't have the capacity to pay a $200-250,000 mortgage," saidColin Bloch, of Burlington Community Land Trust. "And we're nottalking about people with banged up credit histories. These are peoplewith clean credit histories and solid incomes and cannot access themarket."
All regions of Vermont are feeling the pressure of the "real estatebubble" 求 a mostly psychological phenomenon. Like any market bubble,it's difficult to predict how much more it will expand and how hardpeople will be hit when it "pops."
Southern Vermont has seen a more dramatic increase in the sales ofsecond homes, which are driving up the prices of primary homes,according to housing advocates, while the Northeast Kingdom is seeingprimary homes being purchased and converted into second homes. In thenorthwest part of the state, where a housing shortage has plagued theregion for just shy of a decade, additional pressure is coming frombuyers who have cashed out of real estate in other, high-market partsof the country and are snatching up larger properties.
In 2004, 10,021 primary homes were sold in Vermont at a median saleprice of $160,000, according to the VHFA's housing data website(www.housingdata.org). During the same year, more than 2,121 vacationhomes were sold here, at a median price of $195,000.
When the last real estate bubble popped in the early 1990s, itaffected the construction, real estate, and insurance industries. Butdata suggests there is no sign that the current bubble will popanytime soon, according to Tom Kavet, an economist who providesanalysis for the Legislature.
In the past three years, Vermont's property transfer tax, imposedwhenever title to a property is transferred, has increased at dramaticrates. The same is true of Vermont's land gains tax, which is like acapital gains tax on the sale of land that has been purchased and soldwithin six years.
In fiscal year 2002, the state collected $25 million in propertytransfer taxes, up 17 percent from the year before. The followingyear, that amount grew to $27.5 million; and in fiscal year 2004 itwas $34 million. The property transfer tax is the primary financingsource of Vermont's Housing and Conservation Trust Fund, the state'smajor source of money for affordable housing.
In the first quarter of 2005, Vermont posted the 11th highest rate ofreal estate growth (at 14.8 percent), and in the past five years thestate's home prices have appreciated by 56.4 percent, according to arecent report by Kavet, who, along with other top economists inVermont, believes the state will see another five to seven quarters ofcontinued growth.
Kavet notes that real estate bubbles, when they correct, never go downor backward, but instead go flat. "A flat real estate market is whatVermont experienced for a good part of the early 1990s, and that meansthat not everyone will suffer equally, but that's just like a stockmarket crash," he said.The people who often do get hurt are those who come in late to thebubble and are heavily mortgaged, he noted.
Another factor keeping the mortgage rate low is that Chinese and otherCentral Asian banks are buying up hundreds of billions of dollars insecondary mortgages. How quickly Asian banks sell off these mortgages,in the event the dollar continues to weaken against foreign currency,will also help determine how quickly interest rates increase.
"A market bubble is a psychological phenomenon and market fundamentalsoften get left behind, and the market is chasing its tail," saidKavet.
A cracked foundation
The expected growth in property transfer tax revenues due to this boomshould make everyone in the affordable housing market happy.
However, the growth is exposing a deepening rift between advocates oflongstanding policies that fund perpetual affordable housing and theDouglas administration's desire to use the windfall to pay for otherpet projects and government priorities.
Douglas' Department of Housing and Community Affairs was in theprocess of updating its five-year plan for five of the U.S. Departmentof Housing and Urban Development's formula grant programs when itstirred up a mini-controversy. The department questioned whetherVermont should continue to fund affordable housing projects inperpetuity, and argued that projects could become self-sustainingwithin 20 years and not come back to the state for additional money tomake repairs or rehabilitate units.
"We are concerned with the very likely potential of funding [theseprojects] twice," John Hall, commissioner of the Department of Housingand Community Affairs, told the Vermont Guardian. "Taxpayers initiallyget them started and then in 15 to 20 years, if they have not beenable to set aside capital reserve money, it's back to the same fundingsource that we use to fund new housing projects. So we've been firm inour feeling that # when we spend $200,000 per affordable unit, to makesure that we should do our best to be sustainable in the future."
Critics say that the administration's plan would allow housing builtwith public subsidies today to be sold on the private market down theroad, or without subsidies forced to raise rents dramatically, puttingthose units out of reach of low-income buyers.
State Sen. Jim Condos, D-Chittenden, chairman of the Senate GovernmentOperations Committee, said not funding a project in the future if itcannot pay its own way could be more costly to taxpayers than thecurrent approach to provide subsidies to keep homes affordable inperpetuity.
"Think about it. If we allowed properties to go back into the openmarket and we then had to build new affordable units to replace thoseunits, what's the cost going to be? It's going to be humungous; thinkof what the costs of construction will be in 15 to 20 years," saidCondos.
Before becoming secretary of the Agency of Commerce and CommunityDevelopment, which oversees the Department of Housing and CommunityAffairs, Kevin Dorn was the top lobbyist for the Vermont HomebuildersAssociation, which had long pushed for an elimination of the perpetualaffordability clause.
In response to the department's effort, the Legislature and nonprofithousing groups worked to insert protective language in the fiscal year2006 budget to ensure the perpetual affordability of Vermont'saffordable housing stock.
The line in the budget states: "The overarching priority andfundamental objective in the use of funds for all affordable housingis to achieve perpetual affordability through the use of mechanismsthat produce housing resources that will continue to remain affordableover time. It is the goal of the state to maintain at least 45 to 55percent of CDBG [Community Development Block Grant] funds foraffordable housing applications."
Affordable housing advocates say Vermont's funding mechanism forbuilding affordable housing is not being fully realized and could helpto build many more units that are currently in the planning stages.
"It is ironic in a time where real estate seems to be escalating inprice and more and more out-of-staters with disposable equity fromselling homes elsewhere, or just more disposable income, are movinghere because of the quality of life that they they are pricingVermonters out of the market," said Erhard Mahnke of the VermontAffordable Housing Coalition, which represents more than a dozennonprofit housing groups and homeless organizations.
Mahnke, like others, believes the property transfer tax is the bestvehicle to raise money for affordable housing. "As real estate pricesgo up, so does the fund," he notes. "It's harnessing the problem tohelp generate the solution."
By statute, 50 percent of the revenue from the property transfer taxmust go into the Vermont Housing and Conservation Trust Fund. In 2006,the fund will get $14 million, even though the state is expected totake in more than $90 million in fiscal years 2005 and 2006.
However, instead of fully funding affordable housing, the Douglasadministration has been using excess property transfer tax money toshore up deficits in other programs, including Medicaid.
"This administration since the day they've walked in the door havebeen trying to take money from the transfer tax to use it elsewhere,"said Condos. "Only the Legislature, and really the Senate during hisfirst two years in office, restored that money. It's only speculationon my part, but I think they were looking to it as a funding source tobalance the budget.
"In general, though, it's been the attitude of Republicans that wehave conserved enough land and now we need to focus on economicdevelopment," he continued. "I don't think anyone would argue that weneed to focus on economic development, but to take that money and useit for economic development purposes is shortsighted."
Hall said that not all of the money diverted to the housing andconservation fund is used to develop affordable housing. Vermont alsospends some of that money annually to conserve open land, he said, butthe administration would like to see more spent on affordable housing.
Since its inception in 1987, the Vermont Housing and ConservationBoard, which manages the fund, has invested in 7,400 units of housing,and generally spends $1.50 for each $1 spent on conservation,according to VHCB data.
During this past legislative session, Condos worked with housingadvocates to shine a light on a study the Douglas administration hadhoped to bury from public view. In 2003, the administration spent$100,000 to examine the efficiency of the state's nonprofit housingsystem. The consultant found that Vermont's affordable housing systemis one of the most efficient in the country, and could be a modelelsewhere. The study also found that local nonprofit housing agenciespay their employees less than comparable agencies in other states, orthe private sector.
"It was clear that they wanted the ammunition to essentially end thisgovernment program for affordability," said Condos, whose GovernmentOperations Committee held a hearing on the report in April. "And theydidn't like what they saw in this report, and they tried to bury it."
Condos said he tried to get information on the report months after itwas supposed to be released and was told that it was still beingfinalized. When he learned that the Douglas administration was tryingto get the consultant to alter the report's recommendation and theconsultant wouldn't do it, Condos decided to hold a public hearing,and invited housing advocates, the administration, and the consultantsto talk about the report.
Hall said the report failed to fully address the issue of planningprojects to determine future capital needs and the impact that willhave on a project's lifetime costs, and did not provide the state withenough useful information about the potential future financial needsof affordable housing.
Homes for homes
Wealthy out-of-staters aren't the only driving forces behind Vermont'sreal estate market and the pressure on affordable housing.
Communities unwilling to accept affordable housing projects 求 theclassic NIMBY disease 求 have thwarted projects in Shelburne and Stowe.
Both communities fought proposals to build affordable housing.Shelburne residents finally came together and formed a community groupto help assuage people's fears, allowing 20 units to be built in thepast year, with more moderately priced homes (around $150,000) to bebuilt soon.
Meanwhile, Stowe has mostly kept affordable housing at bay, but arevised plan for a 36-unit project is expected to go before localplanners in the coming weeks.
Sarah Carpenter, executive director of VHFA, says communityresistance, coupled with an expensive permitting process and fewer"mom and pop" builders willing to work for thinner profit margins,makes it difficult to find builders willing to develop housing that iswithin reach of median-income households.
For example, Carpenter notes, higher density housing can lower adeveloper's cost, but community resistance often increases when largerhousing projects are planned.
"Still, I think about Stowe, where about two-thirds of the people whowork there commute in from elsewhere," said Carpenter. "I thinkcommunities in Vermont are still struggling with density and clusteredhousing, and the average citizen is being priced out # [T]hat'sunfortunate."
VHFA is surveying businesses to better understand the housing bubble'simpact on their ability to recruit new employees, and keep currentworkers, Carpenter said.
"We know that we are one of the top states in losing young people,"said Carpenter. "And we know that one of the reasons young peopleleave the state is that housing is expensive here."
Not only are young people leaving, notes Liz Curry of the VermontHomeownership Initiative, a statewide network of agencies that helppeople purchase new homes, but many people who make communitiesdesirable 求 teachers, firefighters, nurses, and police officers 求 arefinding it difficult to live in the towns they serve.
"Unfortunately, the people who bring the quality of life to yourcommunity can't afford to live in the place they work, and the peoplewho move in start feeling entitled to their services, but the peoplewho provide those services can't afford to live next door to them,"Curry said.
Hall acknowledges that so-called "workforce" housing is scarce. "It'sgetting so that a firefighter in St. Johnsbury or Burlington can'tafford a home in those communities. But, that's the part of the marketthat is in a sort of no-man's land; there is not much help thegovernment can give that person, and even though VHFA can dosomething, people still have to be able to make the mortgage payment,"he said.
This trend is starting to show up elsewhere, notes Kavet 求 with fewerpeople owning more and more of the real estate market.
"You still see primary homes being owned across all income levels,"said Kavet. "But that's changing, too."
Increasingly, the people who own real estate are in the top 10 percentof wealth. In fact, according to a recent report by Kavet, in 2001,the wealthiest 10 percent of U.S. residents owned 37 percent of allprimary residences, but owned 71 percent of all second homes and 85percent of all non-residential real estate.
Curry and others note that Act 250 求 put in place 30 years ago tothwart mountainside trophy homes 求 is often held up as a majordeterrent for building housing. While Act 250 does add cost to aproject, those costs can be recouped in one or two homes' profit onlarger developments, she noted.
Housing advocates hope to push for legislation that would createstatewide "inclusionary zoning," which would require that either ahousing project contain some affordable housing, or developers pay toprovide for affordable housing elsewhere in the project's community.Burlington has such a law on the books already, as does the state ofMassachusetts.
It might not ease the wait time for people like Jayne Rivera, butadvocates hope such a law would provide more housing for people whoare earning decent incomes but being shut out of the market.
Politics and policies aside, Rivera knows what others are goingthrough. "I had been looking for about six months when I found myhouse 求 I was nervous that I wouldn't find one," said Rivera. She saidshe and her sons are ecstatic. Everyone has their own room, and abackyard to play in. "Room to grow," Rivera adds.
But, Rivera says her family feels a greater sense of belonging now,too. "We feel much more a part of the community and settled," saidRivera, who has lived in the area for 10 years. "When you live inrented housing, you don't feel that sense of community."
The affordability gap
The report "Between a Rock and a Hard Place" tracks the gap betweenhousing costs and wages in Vermont. It was first published in 2001,and has been updated every two years.
The 2005 report found that the gap continues to grow, and moreaffordable housing development is needed to take some of the upwardpressure off housing costs. Some of the report's findings include:
    * The median purchase price for a home in Vermont reached $165,000in 2004, a 67 percent increase since 1996 and a 10 percent jump from2003.    * To purchase that median-priced home, a Vermont household wouldhave to earn more than $62,000 annually. The median annual Vermonthousehold income is just over $43,000. A household with that incomecould afford a $114,600 home.    * For new homes, prices are much higher. The median price fornewly-constructed single-family homes and condominiums in Vermont in2004 was $294,000, an 11 percent jump from 2003.    * Analysis of available real estate sales data for 2004 did notfind a single new home sold that was affordable to a household earningVermont's median income.    * The average Fair Market Rent for a modest, 2-bedroom apartmentin Vermont was $698 in 2004, a 24 percent increase since 1996.    * A Vermont household would need to earn $13.42 per hour, or$27,914 a year, to afford that Fair Market Rent. Fifty-seven percentof Vermont's workforce is employed in jobs whose median wage is lessthan that.    * Over the last three years, an average of 4,000 Vermonters 求one-fourth of them children求have relied on emergency shelters forhousing.    * The report also noted that a lack of affordable housing acts asa drag on Vermont's economy, but housing development serves as aneconomic stimulus.

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