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Vogel: Housing Bonds

Vermont has a housing problem. For low and moderate income residents, there’s a well-documented shortage of affordable, rental housing. For middle class families, home ownership opportunities are receding as housing prices continue to rise. In Burlington, home prices climbed 5.5% last year so that the median price of houses that are currently on the market is $319,000. Fewer home buyers and more renters puts pressure on rental housing and as a result the vacancy rate has gone down and rental rates have shot up. What’s more, Vermont’s housing shortage poses serious problems for the state’s economy. Business owners cite the high cost of housing as a significant barrier in recruiting and retaining employees.

We simply need to build more housing - especially more housing that’s affordable. One way to do this is to take advantage of Vermont’s high credit rating and today’s incredibly low interest rates. Other states like California and Massachusetts are already taking advantage of this opportunity and issuing hundreds of millions of dollars of housing bonds. If we followed this example, the proceeds could be used to reduce the cost of housing through infrastructure improvements and direct subsidies.

Vermont is subject to a bonding cap based on its population, but in recent years it’s never gotten close to the limit. In fact, Vermont has so much unused bonding capacity that it’s carrying forward more than $800 million worth of unused capacity, some of which will expire next year.

Issuing housing bonds provides an additional benefit in that it can activate federal tax credits resulting in even more money for housing. There’s always a danger that more debt means the state’s credit rating might go down. On the other hand, Vermont’s high credit rating means that when an opportunity comes along to deal with a pressing need, it can move quickly and decisively.

An impressive coalition of housing advocates has formed a group called Building Homes Together. They’ve recognized that Vermont has a supply problem, and they’ve boldly set a goal of 3,500 new homes in Chittenden County by 2021. Their plan includes regulatory reforms, inclusionary zoning and improved permitting - all of which will reduce the cost of building new housing.

But to have a real impact, the next governor and state legislature should seriously consider issuing housing bonds to dramatically increase the supply of housing.

John Vogel is a retired professor from the Tuck School of Business. His tenure at Dartmouth began in 1992, where he taught Real Estate and Entrepreneurship in the Social Sector, among other subjects. He was named by the “Business Week Guide” to Business Schools as one of Tuck’s “Outstanding Faculty” members.
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