by Russell Flannery
When I was an UVM economics major more than four decades ago, then-Professor Art Woolf was one of my favorite teachers. Beyond the classroom, he later made a big mark as a long-time state budget and education expert. We recently caught up in Burlington at “Tech Jam,” talked about state’s challenges in attracting start-ups and the damage to Vermont’s economy from high taxes and excessive government regulations. One way he mentioned to both attract talent and ease property prices: reduce burdens on homebuilders in order to boost supplies.
“The problem when you talk about housing affordability is an immediate assumption is that the state’s got to spend more money to create affordable housing and low-income housing,” the now-retired economist said. “That’s not the answer because the middle-income people you want to attract to the state aren’t going to be eligible for it.” Interview excerpts follow.
Flannery: How do you size up efforts to attract start-up talent here at Tech Jam?
Woolf: Every state is going to have something similar to this and is going to try to market itself for entrepreneurs and remote workers. But what do we have that others don’t have? Why live in rural Vermont, which includes Burlington, compared to rural New Hampshire, upstate New York, the middle of Iowa, or the middle of Georgia? If you don’t like cold weather – that’s probably 99% of Americans, you have that big, big liability. There are people that like to ski and like winter but it’s a small number.
You don’t need a lot people to affect the economy, but, still, you really have an uphill battle against people’s preferences. They want to be near a big city. They want nice weather. They want good schools. They want low taxes, unless they think they’re really getting something for those high taxes. If you live in Manhattan, you know your taxes are going to be high but presumably that’s outweighed by all of the benefits of living in New York City.
Flannery: What can Vermont do to improve its appeal?
Woolf: Capitalize on its assets; don’t create more liabilities. Don’t raise taxes – a first step. Housing could be a lot cheaper than it is if we relaxed regulatory burdens. Why are you going to move to the middle of Iowa? Because houses are cheap and they’re not cheap here. It’s not like we don’t have the land or the ability to build houses. It’s appalling that our houses are as expensive as they are; they don’t need to be.
There are a lot of local problems, not just Act 250 – local zoning and planning makes it difficult and costly. There’s also education. The problem when you talk about housing affordability is an immediate assumption is that the state’s got to spend more money to create affordable housing and low-income housing.
That’s not the answer because the middle-income people you want to attract to the state aren’t going to be eligible for it. And the state doesn’t have enough resources to create enough housing to really make a dent, even though it looks nice on paper and you can take a picture of someone cutting a ribbon with scissors. After World War II, housing was affordable because it was easy to build.
Flannery: What can be done?
Woolf: Don’t make things worse! There are significant members of the chattering class who think we should get rid of the property tax to fund education and use the income tax. That’d be a really bad move for a number of reasons. First, the income tax is very volatile. No. 2 is that the property tax doesn’t send a lot of disincentives. The tax will get capitalized in the value of the house whereas high income taxes don’t. They discourage earning income. The only thing a high property tax does is lower the price of (existing) housing or discourage people from building housing – probably more the former than the latter.
There are a lot of things that the legislature could do that would not be good. Unfortunately, a lot of people in the legislative don’t even want to talk about that.