By Don Keelan
It appears that many advocates for the poor and disenfranchised, candidates for political office, and economic development proponents have been calling out for the need of affordable and workforce housing. It has been this way for years, and still, so little housing has been developed. Why?
What does not accompany the cries are the multitude of reasons why there has been no housing built, other than a handful of units by the local nonprofit affordable housing entities and Habitat for Humanity — only a trickle, when a waterfall of new housing units is needed.
Many Vermonters just don’t have the savings to buy a house or the income to carry it. Specifically, what does this mean? In North Bennington, The Shires Housing, Bennington County’s nonprofit housing entity, is developing a 22-unit rental housing project at a cost of approximately $325,000 per unit. Assume two scenarios that would be applicable to a private developer: the sale of the unit or the rental of the unit.
At $325,000 for the two or three bedroom unit, the purchaser would have to provide a down payment and closing costs of $32,500 and $8,000. To carry a 90% first mortgage, at today’s low interest rate of 3% for 30 years, would require an annual payment of $14,892 (before any private mortgage insurance), real estate taxes of $4,875, and insurance cost of approximately $2,000 — or an annual housing cost of $21,767.
The requirement of many housing lenders is that annual housing costs do not exceed 25% of the family’s annual income. In this case, the family’s annual income would have to be $87,000.
Therefore, if a typical new home costs anywhere near what The Shires’ cost is, the potential homeowner would need $40,000 in cash for a down payment and closing costs and an annual family income of $87,000. Either of these amounts is beyond the ability of many Vermonters.
The second scenario is if the unit that cost $325,000 was being offered for rental and not for sale. The developer, looking for a 10% return on investment, would require the annual rent to be $32,500, with the tenant paying all taxes, insurance, repairs, and utilities. The monthly rent payment alone would amount to $2,700 — far beyond the reach of many who look to rent rather than own their housing.
It should be noted that the Shires’ rent payments will range from $550 per month to $1,500 because the rental units are subsidized. This is not available to the private developer — other than HUD’s Section 8 program.
If indeed Vermont wants to make a dent in its lack of affordable and workforce housing, it can be accomplished, but changes are needed, and they are:
- Open up more land with higher density, such as 5 to 10 units per acre.
- All local and state approvals and permits are in-hand within six months of the developer presenting plans to the various approval agencies.
- The land that is made available is not marginal, but has good drainage, water, wastewater, roads, and electric power to the proposed housing site.
- The developer is not required to pay any municipal impact fees for roads, utilities, fire/rescue, and schools.
- State laws are to be amended to make it not unreasonable to be able to evict a tenant for nonpayment of rent or being negligent in maintaining the rental unit.
- The state appoints independent “Masters” located in each of the state’s 14 counties who would resolve an issue if a community/state building agency is being unreasonable with any requirements placed upon the developer.
For years, the state and various groups have been advocating the need for more housing with so little ever getting built. The talking needs to come to an end and address the reasons. Housing developers (been there in my other life) have a keen interest investing in housing projects — so long as it makes financial sense.
Don Keelan writes a bi-weekly column and lives in Arlington, Vermont.