High Housing Costs Are Not Just Limited to Big Cities

How Decades of Tight Zoning Suffocated Small Town Vermont

May 17, 2019

Land, land everywhere, but not a place to build!

The story of high housing costs has long been associated with large cities, but a century after zoning and other forms of land-use regulations were adopted, even small towns in small states can witness high housing costs and disinvestment.

At the news site VTDigger, columnist Art Woolf notes that Vermont—one of the smallest states, both geographically and population-wise—has the 12th-highest ratio of housing costs to income in the nation. This is the case despite the state having an abundance of land that could support new development.

Woolf correctly points to land-use regulations as a key factor increasing the development costs of land. Unlike the costs of labor or building materials, these costs are created by law and can be lowered by lawmaker action. The question is not whether land-use regulations hold back development, but which ones do, how do they do, and whether voters will accept changes to how much the public is involved in the development process.

In Vermont, the story of housing regulation opened a new chapter in the spring of 1970. The advent of the interstate system in the 1950s and 60s had made the state far more accessible to vacationers who sought to build second homes within reasonable driving distance of major East Coast cities. While these tourists helped the local economy with their seasonal spending, the increased traffic, pollution, and other harms that part-time residents brought with them set off a wave of political backlash. By the 1970 legislative session, these complaints had crystallized into Act 250, the state’s landmark land-use regulation law that still guides development in the state today.

Act 250 set out 10 criteria on which development and subdivision decisions would be based, ranging from effects on pollution, water supply and natural resources to aesthetics, school populations, and compliance with local plans. Nine regional districts oversee compliance with the criteria, each with its own set of commissioners appointed by the state’s governor.

Despite the law’s slow-growth intentions, the state’s population continued to expand for decades before stagnating since the turn of the millennium. Vacation homes, on the other hand, have tripled in absolute numbers, going from constituting less than 10 percent of homes in 1970 to more than 15 percent of homes today. So while it has not stopped all or even most growth, the Act 250’s multi-tiered approval process has added layers of regulatory costs on potential new developments that change the economics of homebuilding in ways that keep costs—and rents—high.

Costs from the Act 250 review process accrue both directly through filing costs (0.74 percent of construction costs plus $125 per subdivided lot) and delays in the review process, and indirectly through an increase in the number of public veto points in the review process, which adds uncertainty to the development process. Worse still, the law’s broad criteria gives Act 250 commissioners substantial discretion to disapprove projects on NIMBY grounds, even if those projects are supported by local politicians and planning officials.

Vermont’s status as a small, compact state with a low population should preclude the need for tertiary political mechanisms to review new development. Towns have plans, and the state government has the authority to set guidelines for what they must or must not allow. The entire process of Act 250 review operates as a one-way failsafe to prevent development without considering the general benefits of lower housing costs for Vermonters.

An improved process would clarify and simplify compliance with the Act 250 criteria such that commission approval would look more like a checklist than a forum for public feedback on proposed developments. Where real concerns exist, citizens can seek relief by proposing changes to local land-use plans at annual town meeting days or, in cases of large or exceptional projects, by contacting state lawmakers. Alternately, reforming the Act 250 criteria to account for benefits from economic development as well as the effects of a larger (and younger) state population on the state budget would give the existing commissioners a more complete picture of any change that could come from more and bigger buildings.

As Woolf notes in his VTDigger column, a more affordable Vermont would be a more attractive place to live. Only state lawmakers, however, have the power to fix the root of the problem: high costs due to land-use regulations.

Nick Zaiac is a Catalyst Policy Fellow and a Fellow in Commercial Freedom at the R Street Institute where his portfolio includes housing, postal and transportation issues. He holds a master's degree in economics from George Mason University. He lives in Washington, DC with his wife, Ali.
Catalyst articles by Nick Zaiac