Vermont Cities and Towns Try to Ease Home Construction Costs 

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• Owen Leavey
• St. Albans City Manager Dominic Cloud at the Fonda property

Standing on a verdant slice of hillside near downtown Montpelier, real estate developer Gabe Lajeunesse sketched out with his hands where he'd like to build 61 homes.

Lajeunesse, managing director of Aacred Development, envisions a tidy neighborhood of mid-priced single-family homes and fourplexes on 20 acres of the 72-acre forest he and his partners own between two busy roads. The site sits high above the flood-prone downtown and is easy driving distance to grocery stores, retail shopping and the Central Vermont Medical Center.

This location, Lajeunesse said, makes the wooded spot a perfect place for some much-needed housing.

But construction costs are so high that the developers say they cannot build moderately priced homes unless Montpelier residents are willing to invest, as well. City officials are considering asking taxpayers whether the city should borrow about $2 million to supply water, sewer, roads, sidewalks, lights and stormwater drainage, all of which would lower the cost of developing the site.

"Unless you want us to build $850,000 homes, which is not what we set out to do, we need to work on something together," Lajeunesse said. He and his partners would like to build houses that sell for $350,000, he added.

Vermont has been hit hard by the nationwide shortage of affordable homes. Escalating home prices (up 38 percent between 2019 and 2023) have pushed people to leave the state, blocked others from moving in to take jobs and contributed to record levels of homelessness. Very little mid-priced housing is being built, despite the efforts of state lawmakers to create incentives and ease development restrictions.

Now, more and more towns like Montpelier are looking for ways to address a crisis that has left the state needing 24,000 to 36,000 new homes by 2029.

Some as small as Montgomery, just south of the Canadian border, are investing public money in community wastewater systems to make it less expensive for developers to build. In June, Waitsfield voters approved a $15 million bond to improve the town's wastewater system to encourage more housing.

Other communities are considering making town-owned land available for housing. In the southern Vermont ski town of Dorset, where nearly half of all dwellings serve as second homes, that means planning an engineering study to see whether the land it owns would be suitable for a compact subdivision. Dorset Town Manager Rob Gaiotti said the reasons for taking that step are easy to explain.

"Our school district failed to recruit a math teacher a couple of years ago because she couldn't find housing," said Gaiotti, who has an eighth grader at the Dorset School. "Teachers and nurses and essential service folks: The hope is they're the ones we can figure something out for."

Still other communities are looking to regulations and new incentives to open up long-term rental housing. The Burlington City Council approved limits to short-term rentals in 2022 and, in March, approved a zoning overhaul that officials say will create hundreds of new homes over the next decade. Killington and South Burlington also regulate short-term rentals; Stowe has a new ordinance that will take effect next year.

Woodstock approved short-term rental limits, too — and then went a step further. The town's Economic Development Commission has created four programs that provide incentives to property owners to create rentals from existing housing stock and to build new units. One, called Lease to Locals, offers cash to owners who convert housing from short-term to long-term rentals. In May, the town also started offering grants of up to $2,400 to homeowners who rent rooms to local workers, although there have been no takers yet.

St. Albans has led the way in creating more housing at all price levels. Since 2018, the city has used public financing to create partnerships with developers on three projects, producing about 175 units of housing.

"St. Albans recognized early on that the market for housing and commercial development is broken," said David White, the president and founder of White + Burke Real Estate Advisors in Burlington. "It's an incredible example of a municipality as an entrepreneur."

Most recently, St. Albans has paid to clean up a contaminated former Solo cup factory known as the Fonda site and has issued a request for proposals from developers to build 87 units of housing there. The city will sell the site for $1. As an added inducement, the parcel comes with a $10 million low-interest loan from the Vermont Housing Finance Agency. Construction on a separate senior housing project at the Fonda site is already under way.

It's not easy to get developers to build in St. Albans when they can charge higher rents for their projects in Chittenden County, City Manager Dominic Cloud said. But now that the city has spent $6 million in state and federal funding preparing the site, he thinks he can get a developer to bite.

"Our plan is to offer a development package that's better than anywhere else in the state," Cloud said. "Nowhere else do you get free land and lower-cost financing than the market."

Other cities and towns are starting to enter the development world. In Montgomery, the selectboard is looking for ways to help Trout River Developers build homes on 16 acres the group recently purchased in the center of town. The developers live locally, selectboard chair Charlie Hancock said.

"We're doing this for Montgomery," Hancock said. "It's not like these are investors coming from New York City or Boston. These are folks who are part of the community."

Montgomery is going through the engineering phase of a $13 million wastewater system that would support 32 units of senior, affordable and workforce housing at the site. The money comes from an array of state and federal sources and from $1 million that residents agreed to borrow in 2020.

"There's no huge disconnect for people that to maintain housing stock, this project is needed," Hancock said of the vote. Construction on Montgomery's wastewater system could start next fall. He said he often gets calls from officials in other towns who'd like to do something similar.

"Hopefully this is a model that can make this process easier for others to follow," he said.

Upgrading water and sewer systems is one important way that cities and towns can speed housing construction. Other tactics are applying for Vermont's neighborhood designation programs, which ease permitting requirements; updating zoning; and using tax increment financing, or TIF, where voters agree to invest in infrastructure upgrades with the understanding that the financing will be repaid by the increase in property tax revenue that follows.

White River Junction has updated its zoning and used the TIF program to make it easier for a private developer to build middle-income housing in recent years, said Ted Brady, executive director of the Vermont League of Cities & Towns. Williston is another town that has changed zoning to ease the path for developers — and has seen results, Brady said.

"Williston has gotten all this criticism about development and sprawl, and now there are neighborhoods with thousands of people who are within walking distance of the shops," Brady said. "It's not the cute Vermont story, but they have built more housing in Williston than almost anywhere in the state in the last 10 years."

Municipal involvement is the only way forward under these market conditions, said White, the Burlington real estate consultant.

"We need to encourage municipalities to take the risks that they have not historically taken," he said. Successful housing projects, he added, happen when town officials collaborate with local businesses, banks, hospitals and other institutions that share the goal of seeing more housing built.

"If they want that development to happen, municipalities are going to have to step up and take a leadership role," White said.

Meanwhile, in Montpelier, city officials expect to ask voters this year or next if they're willing to borrow about $2 million to help Lajeunesse's company build his development of modest homes as an extension of an existing 31-home neighborhood. The bond would be repaid by an increase in taxes and fees generated by the homes, the city says.

Lajeunesse contacted Montpelier officials about two years ago in search of support. He and his three partners — including Barre Mayor Thom Lauzon — bought the land at the end of a road called Isabel Circle in 2021 for $1.2 million. He knew Montpelier had paid most of the cost to upgrade the road, water and sewer systems to help Barr Hill build a $10 million distillery and cocktail bar near downtown in 2019, and wondered if his company could get similar assistance.

In return for help from the city with infrastructure, he said, Aacred would sign a 10-year agreement that the lots can't be sold for more than the original cost plus 10 percent, plus inflation.

"There's not going to be enrichment off the public dime," Lajeunesse said.

The city's plan has picked up opponents already. Aacred's wooded site is traversed by mown paths that are used by walkers. Some neighbors have vowed to fight any bond campaign, saying the project would increase traffic and create other disturbances.

But Josh Jerome, Montpelier's community and economic development specialist, said it's clear that building costs make it impossible for developers to construct mid-priced homes without assistance. Construction costs have soared to as much as $500 per square foot, forcing builders to price their homes well beyond what most working Vermonters can pay.

Homes in the $300,000 or $400,000 range are also out of reach for many locals, but that is better than the high-priced houses that would be built without any support from the city, Jerome said.

"Do we want to have a development of $600,000 and $700,000 homes?" he asked. "Anything the city can do to help grow the grand list, and make it as affordable as possible, is what we want to achieve."