By Don Keelan
The April edition of the Vermont Business Magazine had a lengthy piece by Bruce Edwards on the state of rental housing in Vermont. According to Edwards, Vermont has the second lowest rental apartment vacancy rate in the country, presently at 3.2 percent, down from 6.1 percent in 2010. Edwards does a good job reporting how the Vermont Housing Finance Agency is attempting to address what the state refers to as a “housing crunch.”
It is well known that Vermont does not have a strong rental housing stock, added to which many of its citizens don’t have sufficient take-home income to afford the rental expense. The general rule is that no more than 30 percent of a household income should apply to housing costs — for many it is closer to 50 percent.
What is not mentioned in the VBM piece and other articles on the rental crisis is that a fair amount of residential rental housing is now being offered by owners of what were once single family houses. These properties have been converted to multi-family rentals. And it is safe to say that many of them would fail state code inspections for fire, excess occupancy, inadequate septic and lead paint issues. Is it any wonder that the Vermont AG recently fined six landlords thousands of dollars (total of 39 apartments) for failing to comply with the state’s lead paint ordinance?
Nevertheless, such rentals do exist and are providing some relief for the housing crunch.
The question that is not being asked is, why aren’t developers encouraged to develop more residential rental apartments?
From a real estate developer’s perspective, all else being equaled, there is no better investment to be made than to build rental housing units. I make this statement after having spent four decades in the real estate development world.
To a developer, rental real estate projects provide an excellent investment, especially when the alternatives are to sell single family homes or condominiums. The latter two, when sold, are gone forever along with having to pay federal and state income taxes on their sale. Furthermore, it takes just as long to navigate the state and local approval cycle to build a rental project as it does to build a single family subdivision or condominiums.
Further confirmation of this point can be seen in the the National Multi-Family Housing Council’s 2018 rankings of the top five (out of 50) rental property managers that oversee close to 1 million rental housing units. For these companies, managing rental housing is a very profitable undertaking.
There are several reasons why developers in Vermont are reluctant to build rental projects. The major reason is that Vermont is not a friendly state when it comes to how landlords are treated. To evict a tenant for failure to pay past due rent or to take proper care of the rental unit becomes a time consuming and costly endeavor. This is not to say that there are not some landlords who deserve not to receive their rent for failing to provide their tenants with a clean and safe environment.
Another significant factor that discourages developers to seek out rental housing development is the time and money required to run the approval gauntlet, added to which is the high level of uncertainty that approvals will ever be obtained.
The advantage the state and NGOs have in getting some units developed is that they have a source of funding not available to the private sector. Even with low cost financing and housing tax credits available to them, the demand for rental housing is not being met.
What could help is for the state, NGOs, and the private sector to come together and share, recognize, and attempt to address the challenges of each group. Neither sector can resolve the “housing crunch,” but together they might. It is being done elsewhere, why not in Vermont?
Don Keelan writes a bi-weekly column and lives in Arlington, Vermont.