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A busy real estate market and building long-term wealth

Monday, November 29, 2021   /   by Ken Couture

A busy real estate market and building long-term wealth

A busy real estate market and building long-term wealth.png
Pressure on Washington County's housing market is primarily focused on affordability and availability.
According to Karen Hatcher, the national vacancy rate is 6.7 percent. Vermont’s is 3.4 percent. Washington County’s is even lower at 2.5 percent.
“So basically, in a nation, where there's hardly anything to find, in a state where it’s worse, and in the county, it's worse than that,"  said Hatcher, the chief executive officer of Downstreet Housing and Community Development.
Downstreet focuses on housing people across the entire accommodation spectrum, from those who are unhoused, to renters, to first-time homebuyers. It manages more than 500 Affordable housing units with rents at 30 percent of average median income up to 120 percent.
Hatcher said it is one of five organizations in Vermont that develops and manages housing on a regional scale.
As an illustration of some of the affordability issues people face, the National Low Income Coalition states the average renter in Vermont needs to work 81 hours a week to afford a two-bedroom apartment.
According to the organization’s annual report Out of Reach: The High Cost of Housing, in 2021, Vermonters need to earn an average of $23.68 an hour to affordably rent an apartment without paying more than 30 percent of their income.
The average renter in Vermont, said NLIC in its report, earns $13.83 an hour. The renter would need to work 81 hours a week to afford a two-bedroom apartment at this wage. The NLIC bases this on the state’s fair market rent of $1,231 a month.
Washington County ranks second among the state’s most expensive areas, with a housing wage of $20.88. Burlington-South Burlington area tops the list at $31.31.
On the availability side of the issue, Hatcher said the state has underbuilt housing for decades.
“So wherever you enter the housing market, whether that's a rental, or buying a home, or wanting to move from a smaller home to a larger home, you're basically stuck,” she said.
Along with not enough housing, the state also has older buildings that need reinvestment. She added that most people who have lived in their homes a long time need money to make them market-ready.
“The system itself is broken,” she said.
Hatcher explained that housing is the first piece of living a stable life.
Beyond a safe place to sleep, housing also determines multiple aspects of a person’s life, from where their children go to school, to a local job market, to have an address so they can apply for a job, bank account, or driver's license.
Pre-COVID, approximately 100 unhoused people lived in Washington County. During COVID, that number ballooned to 400, Hatcher said.
As of October, 239 people were living in motels in Washington County as part of the state’s emergency housing program, according to Hatcher.
Sixty-four of those people are children.
“And every week you’re wondering if the governor is going to extend the program,” she said.
Downstreet has five housing projects in various stages slated for Berlin, Barre, Waterbury, and Montpelier.
Recent federal funds earmarked for affordable housing have allowed the organization to ramp up its projects. She hopes the money will last for several years so the county can catch up on its building needs.
She said the state as a whole needs more recovery residences for people living with mental health issues or substance misuse disorder.
Downstreet is preparing to create a recovery home in Barre. Hatcher hopes the organization will close on the building by the end of the year. Once completed, the housing would shelter six mothers and their children.
“And that kind of housing in the state is absolutely essential during both the opioid crisis and to rebuild our communities and give the folks who need the help the most an opportunity to live somewhere safe and structured and sober. That's the other missing piece here,” she said.
Hatcher joined Downstreet in August. She said she and her husband felt fortunate to have found a house when they relocated to the area. Hatcher has coworkers who lived in a short-term rental for six months while trying to buy a home.
As part of the state’s housing ecosystem, real estate agents Tim Heney and Ray Mikus also watch where people find places to live.
Heney, the principal broker with Heney Realtors in Montpelier, said Vermont needs more ways to responsibly create housing. Permitting and construction costs can vary widely from community to community, he said.
Heney believes Vermont would have a healthier real estate market if the state offered a better tax structure.
The way the state’s real estate taxes work now, he said, it is less expensive for people to hold on to their properties than sell them. This creates a logjam in the market, he added.
Ray Mikus, owner and principal broker at Green Light Real Estate in Montpelier, has noticed a trend during the pandemic around how people are paying for homes.
This trend could impact the state’s existing wealth gap, he said.
Pre-pandemic, Green Light staff saw a lot more loans geared towards first-time home buyers. He said that loans through the Federal Housing Administration (FHA) or Veterans Administration require a down payment of zero to 3.5 percent.
In the current market, however, buyers are accepting fewer sellers with these types of loans.
Mikus said one reason is that these loans can appear to be less of a sure thing when compared to a buyer who has been approved for a conventional mortgage or is paying with cash.
The upshot means some buyers lacking a $20,000, $30,000, or $50,000 for a down payment are left out.
“We know that as a country, owning real estate is one of the best ways to accumulate wealth long term,” Mikus said. “So this starts to separate even further those who have money and those who don’t.”
For two years, Mikus has received questions about whether COVID refugees moving to the county contributes to the local housing crunch.
So, Mikus pulled up his firm’s brokerage sales.
“That’s how much of a real estate nerd I am,” he joked.
In 2019, of Green Light’s sales, 15 percent were to out-of-state buyers. Compared to year-to-date 2021, those sales totaled 24 percent.
However, it also means that 76 percent of sales so far this year are to people already living in Vermont.
“So that's still a big chunk of Vermonters that are just getting onto the property ladder or moving up the property ladder,” he said.
Given that most of Washington County is primary homes rather than vacation homes, Mikus guesses that the out-of-state buyers are settling in the county long-term.
But this makes him wonder, where are the people who are selling their houses moving to? Are they staying in the county, moving elsewhere in the state, or leaving Vermont?
Mikus is also wondering what will happen when pandemic protections, such as forbearance, run out. Will agents start seeing foreclosures?
“When that happens, that tends to impact the people that are further down on the socio-economic scale,” he said. “That causes more financial strain to the people that needed it the least.”
In Hatcher’s experience, Vermont understands the importance of safe and affordable housing. She feels it starts with community values and champions who have been working on expanding affordable housing for decades.
Vermont’s uniqueness also extends to policy.
She points to the creation of the Vermont Housing and Conservation Board as ensuring that Vermont doesn’t have the same conflicts between land management and development as other states.
“Vermont has room to be able to build, and also to be able to attract talented people to come and live here and work here,” she said.
“If we do that well, we're going to have a very vital economy and will be a very resilient state,” Hatcher continued. “I think we are on that path, and I think we just have to keep pressing all the levers at the same time.”
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