CPA describes why no-one is building new homes
by Don Keelan
Seven months ago in Arlington, Vermont, a state housing conference convened. In attendance were state officials, local members of the General Assembly, members of the Bennington County Planning Commission, local town and housing organization leaders, bankers, representatives from industry and nonprofits, and members of the public. The consensus was unanimous: we are in dire need of affordable workplace and rental housing.
Yet, since last October, not one housing unit has been started in the area. Therein lies the problem. We meet, we talk, we pass legislation, and in the end, we still don’t have the housing so desperately sought not only in southwestern Vermont but throughout the State.
Vermont probably has its most significant housing shortage since the end of WWII. While most folks do not question the need, there are many obstacles to building housing today.
First and foremost: are towns and villages willing to accept multi-family housing built in their communities? Are municipalities offering residential sites to developers who have met the requirements for drainage, traffic, flood plain avoidance, wastewater, density, design, and issues from adjoining neighbors? Has the regional Act 250 Commission given its blessing to the site for a planned development? Most likely, they have not.
And then, of course, there are the bankers or mortgage lenders. Are they willing to step up and waive some of the onerous requirements placed in front of mortgage applicants? Credit scores, down payments, interest rate commitment, and long-term car debt and college loan waivers? These obstacles can be insurmountable for many buyers, especially first-time homebuyers. Lenders say it is out of their hands: the regulators set the rules, not them.
Add in the developer/builder and what this person (company) must face in bringing housing to fruition. After the uncertainty of the numerous approval hurdles to a planned housing project, there is the cost.
In today’s housing market, $250 to $300 per square foot is at the low-end of quotations. The math is quite simple: a one thousand square foot home will cost $250,000 or $300,000. Assuming there are no unusual site conditions, off-site mandates from the approving authorities, material quotes that don’t exceed 30 days, and no bottled-up supply chain issues.
Like other industry sectors and the government, builders desperately need skilled and unskilled craftspeople. Combined with an exceptional short building season in Vermont, a lack of workers makes the development of multi-family homes a significant challenge.
Then there is the buyer. A homeowner who is exasperated, confused, and scared. Since last summer, mortgage interest rates have risen and are now close to 6% for a 30-year mortgage. A $300,000-priced home will take at least $109,650 of family income to qualify, and this is before any existing debt beyond one year for a car or college loans.
This is only part of the problem for first-time homeowners. The next is the down payment. The above scenario will require close to $45,000, assuming a 90% mortgage is obtained, and no discounting of rate is requested.
The housing needs of Vermonters and folks wishing to live and work in Vermont are not going away. At this time, we should avoid building; the pricing for new home construction is outrageous.
The State and localities might consider setting up a revolving loan fund to assist first-time homebuyers with the down payment.
While we are waiting for prices to stabilize, towns and the State should have multi-family building sites ready to be developed until the housing market is not facing today’s pricing, labor, and supply chain issues.
The author is a U.S. Marine (retired), CPA, and columnist living in Arlington, VT.