Originally published on Vermont Digger in November 2018
Would Vermont be more affordable if property owners could be confident that policy changes made in Montpelier, and at the local level, would not negatively impact property values? Any serious effort to address our affordability crisis and demographic trends should contemplate this question. High property values, and more specifically, high land values, is the unifying theme across a variety of challenges, whether it’s development of affordable housing, education spending, growing businesses, renewable energy development, or increasing the amenities that would make Vermont more attractive to new residents. High land values act as a growth constraint and there’s a deep underappreciation in Montpelier for the impact land values have on making Vermont more affordable. State government cannot do much to affect the cost of materials, but it has a great deal of influence when setting policies that affect land prices. Indeed, some towns in Vermont, such as East Montpelier, have already recognized a need for a shift in approach (“we’d like to see development that may be skewed toward the younger crowd that would bring children to the school.”)
While some land is more valuable than others, land should generally be 30 percent of the total property value of a homesite. Prior to 1990, according to data from the Lincoln Land Use Institute, land used to be about 15 percent of the total homestead property value in Vermont. Since 1990, however, land has averaged 38.2 percent of the total property value. In comparison, the average land value for all of New England, including Vermont, stood at 34.9 percent. Excluding the most urban, and therefore most expensive states (Massachusetts and Connecticut), the average land percentage for Maine, New Hampshire and Rhode Island was 31.9 percent for the same period. New Hampshire is a clear standout with the lowest average land value percentage of 26.8 percent from 1990 onward and just 12.6 percent since the Great Recession, a stronger downward trend than other New England states. In examining current assessment data where I live in Pomfret, 41 percent of the total homesite value is attributable to land for parcels of 2 acres or less, making smaller homesites less affordable. The upshot is that land is substantially more expensive in Vermont.
Contrary to political debates, our affordability crisis is fundamentally less about how one party or the other wrecked the Vermont economy. According to an excellent 1992 journal article by UVM economics professor Art Woolf, the rise in property values around 1990 resulted from a host of factors, ranging from “the baby-boom generation moving into their prime home-buying years, an increase in the number of single-person households, and an increase in the number of elderly people remaining in their own homes.” Additionally, “the growing second-home market … put upward pressure on land and housing prices in many areas of the state, and the passage of the 1986 Tax Reform Act … left owner-occupied housing as one of the few tax shelters remaining for middle-income Americans.” Today, incumbent property owners, acting quite rationally, do not want anything to negatively impact their current asset value (see my earlier commentary on Vermont’s “homevoter” effect).
Vermont is a beautiful place and I know a lot of people want to keep it that way, and we should. To be clear, this commentary is not a call to open the floodgates to development. It is primarily a call to our leaders in Montpelier to go deeper and look for the true root cause of Vermont’s affordability crisis, which I believe to be founded in our land use policies, including tax policies related to land use. It’s also a call for leaders to develop a vision for what Vermont should be in the future because land use is inextricably at the center of that vision. I also recommend to our leaders to attempt to loosen the grip of incumbent landowners in a constructive way by offering assurances that their asset value will remain strong. One way to do that, for example, would be for the state to implement a home equity assurance program similar to programs in Chicago, originally designed to prevent “white flight” in the late 1980s (See also, William Fischel’s book, the Homevoter Hypothesis: How Home Values Influence Local Government Taxation, School Finance, and Land-Use Policies, Chapter 11). Starting small would be wise – a pilot program in a regional area would be a good start.