 We're going to start with the so-called missing middle proposal that's being developed by VHFA. We cut more short on two occasions and our understanding as the program has evolved with more detail and we want to give her ample time as she's the person best suited to propose this. It wasn't an either version of the budget adjustment act that the House and the Senate passed. The governor wanted it there and I think part of the pushback by myself and Tom Stevens on the House side is we really at that point didn't know much about it to start launching a $15 million program without any legislative review. So here we are and the floor is yours. Maura, thank you. Welcome as always. Maura, you're muted. Oh my gosh, starting off great. I just want to ask, I know that you have Commissioner Hanford here too and I didn't, I don't mean to question the chair, I'm just wondering is he here to speak about something else or might it make sense for him to lead in because this is a governor's proposal? I think you would go first. I'm happy to jump in. Josh is here a lot on various topics but I really, given the fact that we've cut you off twice, I just would like you to start and tell us about the program. Great, I can do that. My name is Maura Collins. I'm with the Vermont Housing Finance Agency. I submitted written testimony last Friday so that's on the committee's website under that date and this proposal did come from the governor as a part of budget adjustment and I want to acknowledge that that's an unusual step to launch a new program mid-year in a budget adjustment. I think that Commissioner Hanford can probably speak to the thinking behind that and that that there were extraordinary circumstances during this fiscal year where housing prices are just going up so fast and furious that the governor felt like there was a need to address this issue immediately and send a signal to home builders that there was going to be help to support the creation of affordable home ownership homes. When I testified before, I have explained that it is US housing policy to fund affordable, the creation of affordable rental housing to a far higher extent and that we fund affordable home ownership construction to a far lesser degree and instead we make home ownership affordable through some might say complicated tax and financing measures like a 30-year fixed rate mortgage and being able to write off mortgage interest and property taxes on our income taxes. So this proposal is different than the existing home ownership tax credit program or really the home ownership support that the Vermont Housing and Conservation Board has provided in a few key ways. This program is designed to be a supply side mechanism where there would be funding to builders and developers of modest homes for purchase so that we could try to get more stock on the market. Currently, there are a lot of very successful down payment assistance programs like VHFAs that's supported through the home ownership tax credit program but also VHCB provides funding to support the shared equity model that a bunch of non-profits administer with shared equity and that gives money to home buyers largely to lower the cost of housing and make it affordable and those resources are perpetually affordable. When we give money to home buyers and ask them to and give them more and more money and ask them to participate in a broken market we are not helping them find homes. We are giving them more money to still get outbid with largely. The home buyers that this committee is trying to serve through most of its affordable housing programs are all people who need mortgages and just by the fact of needing to have a mortgage you are at a disadvantage in this housing market at this point full stop needing to slow down the process by working through a lender as well as going with very reasonable lender requirements such as needing an appraisal and sometimes encouraging inspections. These things are slowed down the process and will often put a buyer at a disadvantage because they can only get a mortgage up to the appraised amount and there's not the same kind of cash on hand for that buyer to be able to bid over the asking price and what we hear regularly is that homes right now are selling for far greater than the asking price in these bidding wars often going to cash buyers. So this program is attempting to address the problem not by just giving more money to the home buyer but by trying to incent more modest homes to be on the market so it opens up the market and creates more opportunities. The housing stock right now is extremely limited. I know vpr just did a brave little state podcast on this and there's been a lot of quantifications of just how tight and low the inventory is but I think we can see it both in the number of homes that are on the market as well as the upward price pressures that we have. So this program is designed to address a couple different things in a really flexible way. For one there are some communities in our state where it costs more to build housing than that home will be appraised for and I know you have Michael Montian he'll be testifying and I don't want to jump ahead of testimony but I think he has some real life examples of within Chittenden County where Champlain Housing Trust has had that experience where it costs more money to build than the appraisal comes in for and so this program would cover that what we call a value gap that if it costs I keep using nice round numbers because I don't do math well on the fly but if it costs 425,000 to build a home and it only appraises for 375,000 this program would pay for that difference so that a buyer could buy the home at that appraised value because they can't buy a home for 425 they can't get a mortgage approved for 425 that value isn't there it cost our developers that much it's very real the land cost the construction labor materials cost 425 but by modest buyers cannot pay for that with a mortgage so we need to buy down that cost to the appraised value. Can I ask you a question at this point please I don't mean to interrupt but I think a lot of us support the concept here of middle income missing middle however you want to call it but essentially will you at the closing write a check for this amount to seal the deal to miss the missing piece in order to buy the home and closing that's what VHFA will do with this money? For that piece we would have developers apply to us they would give us a budget they'd say what their expected cost of construction is there would be some limitations on that we're not going to include the cost of land and some different things they can only get 35% of their total development costs approved but if it if it gets through underwriting which I don't want a short change because then we would provide a guarantee to the builder to say if your home is within these limits and it's a modest home and it's going to be priced at this price point then we would provide that funding late in the game like after the home is built to cover that cost to the builder so it doesn't need to come in at the loan closing of the buyer but it can but coming in late in the process would be a goal of ours because that protects the money and then it's less at risk if the construction doesn't complete or there's some kind of delay or the like. So you're saying this is just for new construction? In this example I'm talking about new construction I can talk about how it would work with acquisition rehab it would be very similar where a builder would buy a dilapidated home that's probably going to be off the market and not and need a lot of work they'd buy that and take on that risk they would do the renovations needed and then once it was ready for sale we would provide that gap financing there. Is there are there any homes that have value gaps that are existing homes that don't need rehabilitation or new construction the vast majority of homes that sell in the market are homes that turn over and I assume that they appraise for less than what the asking price to are we not covering those in other words this only a program for builders. We were designing this to be for new construction or for homes that need substantial rehabilitation we were not imagining this program as buying homes that are on the market that don't need any work because that would just be continuing to support an overheated market if that's something that the legislature wants us to consider we could look at that but really we're looking at those that need the construction touch of rehabilitation or to be built new. I'm just trying to get my arms around that it seems to make sense that this would facilitate a new home or refurnished home on the market where the other one just is the status quo of the same house being sold not a new inventory but I always ask this question I mean if you're essentially writing a check to fill a gap I mean it's the same argument you made to us to establish the first home owner down payment assistance program say they want to buy they qualify they just can't afford the upfront costs of closings and stuff they need $10,000 more this may be more and then we have the VHIP program that gives owners money to do significant rehabilitation to bring home market why do we need a new program why can't we bring this program within those. I love the question so the VHIP program is only for rental housing so while there is a property owner ultimately those units that have been renovated are now available to be rented this is a way of doing a similar program for home ownership and therefore the owners can build equity by owning that home okay and I the why it's different than the down payment assistance program is that down payment assistance doesn't bring any homes online I'm just handing people $10,000 and they're out trying to find a place to live with an extra 10 grand in their pocket that's very different than handing $10,000 to a developer and saying if you build a home could you sell it for 10 grand cheaper and and make it modest and have it be within these limitations that's doing a very different thing in the market okay right Mr. Chair So Maura I get this I understand who you're we're shifting because this market requires us to be seriously more creative I guess my concern is we're calling this the missing middle but actually we're targeting it lower income families 100 we're targeting it to the same family income as the home owner a revolving loan fund that we are about to hopefully set up in statute with S 210 and and we have the money for in DHCD 120% of area median income is not a lot of money that is of lower income families if I'd be happier with this program if we were really looking at the missing middle the missing middle is significantly more income than this so that's one thing I'd really like us to address if we're talking seriously about the missing middle and I guess it's hard it's hard to I mean I think one of the challenges with this program is it's hard to look at subsidizing people who are making profit out of it you know so it's hard it's subsidizing the problem and I get it I get it but it is I think one of the fundamental challenges people face with this program is subsidizing somebody who's doing this for profit who's building who's a developer who's and we're I know in sending them to build not for less because they're building for the same amount of money but it's a subsidy to them in a hot market I think that's my challenge here I have heard that and just a few notes I don't like the term missing middle but it was the one I was handed and so I'm using it and so if we want to put some marketing people on that I would welcome a reframing I think it's amorphous and I don't know a data person like me can't handle this kind of vagueness what's a missing middle of what even middle class middle income no one can define these things very clearly uh originally this proposal was serving households up to 140 percent of very immediate income and it was through actually the exact opposite point that we heard from legislators that um we were told that that actually the serving people who don't need it and that we need to stretch to lower incomes so I think that that is an interesting policy debate that the legislature can continue to grapple with and it I will say as a program administrator that will not change the functionality of this program whichever income limit you all settle on and so that is a discussion that can continue there is a federal tax credit program that has been contemplated but has not passed in dc yet and that sets the limit at 140 percent of area median income for the reason that you stated um the last point about the uncomfortability with builder profit I completely understand this is something that um we grapple with I mean we hand out over 35 million dollars a year in federal tax credits which is a very valuable resource and um there have long been questions and criticisms about developer fees through that program and how uh much developers should be rewarded to build affordable rental housing and so we have looked at standards and put limitations on it and checked ourselves against other states and looked at feasibility models of projects and gotten very comfortable with the limitations on developer fees that we have for affordable rental housing development and that is the same structure and process we would put in place here there would be limitations on developer profit right now the national association of home builders puts the average builder profit at 11 percent of a deal that is for home building that is lower than our current developer fees that we have for rental housing development and so we would look though to have those kind of limits so that we make sure that this is not a program that is just going to provide profit to builders who would escalate prices we're going to be looking at these performers and budgets and how much did it cost to build the housing and limit the subsidy to 35 percent of the total development cost that doesn't include land prices so if you overpay for a piece of land we're not going to reward you for that it also doesn't include the builder profit and so if you increase your profit you're not getting more subsidy from this program as a result so I think we have some protections built in and the last thing I want to say is that I earn a profit for the work that I do I want to be very clear I cash a paycheck every other week and at some point we have to be comfortable with recognizing that it does cost money to show up and do this work and developers and builders have long been maligned that they are charging in excess of profits and that that is the reason why we have this housing shortage and I would counter that it is much more nuanced and that we need to look at land use land prices lack of building under investment growing income divide and many other factors that have also contributed to this housing situation that we're in agreed I didn't was not meaning to I know maligned I always look for an opportunity to just say though that builders are the ones who are going to help us create a more welcoming and open and vibrant Vermont when we have more homes that are available to folks who want to move here folks who are already living here and are under housed are living in their parents basements are not able to get out of situations that they need to get out of because there's no homes to move to right no and the thing we're grappling with is the the cost of building which is I mean I wish we had more developers you know building fast and furious right now I mean help what the other hand we're working on workforce to fill all these jobs to make to build more buildings I mean we're all working towards the same end it's just and that's what I just want to say and this was another point I want to make sure I was clear with you all so in a bit you're going to hear from Champlain Housing Trust and I know they'll be talking about the wonderful success that they've had with their programs and thousands of Vermonters are homeowners as a result of our shared equity programs of the great work that they and others have done through the homeownership tax credit program and we have done a lot that we should we are proud of and should be proud of and it's great but when you talk about wishing that there were more builders and developers who were doing this I think we can get there you heard from Tom Getz from Summit Properties last Friday briefly and Julie Ifland who wants to do homeownership construction in Randolph I have three more builders and developers who would love time on your schedule if you had it who are ready to testify about projects across Vermont I do think that a program like this would be the carrot that would bring those other builders and developers in to create affordable homeownership one more point to make when we get back to my testimony and then I think you also have others to talk so let me just follow let me just follow up and then we can finish up and move on to Josh so I've heard a lot of talk about perpetual affordability and some give back to for this for this program for these incentives I want to hear more about what this program does similar to a shared equity model I'm a believer that if we're giving out incentives we're also not only are we solving a society problem we have a big one with housing here and we're trying to fix that but the individual like the homeowner is getting a big lift getting into their own home and a nice home and I don't think it's wrong to say if you make profits from that and you sell it that that could be passed on to the next buyer in this case I don't know what exactly is in there like we have with VHIP we have rent to lower income people for a while so I'd like to hear more about that and also hear from Michael about how that compares with some of the programs he's worked on but from a builder's perspective yes we need them to build and yes we give them this money to incentivize to make it to make the numbers work but after they're done with the project do they have any give back for us helping them sustain their business in addition to addressing the societal problem there would be no give back to cover that value gap because while we are sustaining their business they really could still build those homes without this program they would just sell them for far greater money and so if it costs $425,000 to build a home and it only appraises for $375,000 right now they still may be able to sell that home for over $425,000 if they can find a cash buyer to do so. So I mean essentially you're saying and there's no right or wrong here is that they're helping us more than we're helping them by us giving the program. I see Josh nodding his head yes yes I mean home builders there are many home builders in fact another one I don't want to speak for other people but if there was time for testimony from one I know who's saying I'm now selling homes for $700,000 and I don't want to do that it doesn't feel good it's not why I got into this business he was telling my co-worker Seth I'd like to get back to selling homes at $300,000 to $400,000 but I can't do that right now because I can't build them for that low and so I can't sell them for that low. I do think that this is a program that can help that but I want to pivot to your question about affordability and the permanency of that is that okay Senator Brock if I do that please go ahead. So that's been a big question that I understand why it's been raised the shared equity program has been wildly successful and this week being the housing conservation coalition week and the kickoff being in a few hours of that group there's been wonderful support for the permanent affordability of the shared equity model. This program that value gap we don't have a way of retaining that investment because it disappears it costs $425 to build it's only a praise the home's only worth $375 we are not securing that investment with permanency but we are securing any affordability subsidy that further lowers the price of the home. So if the home appraises at $375 but then we want to target a median income buyer and so we only want to sell it for $315 that additional $60,000 subsidy would be retained and right now we are drafting and looking at the model of a land subsidy covenant which is a similar tool that the shared equity model uses and having that subsidy covenant retained that investment. So what would happen is is that if I buy a home I get to buy the home at $60,000 lower than I would have otherwise because I'm income eligible I then years from now sell the home and walk away with all of the equity so this is different than a shared equity program. I retain all of the equity but I don't get to cash out that $60,000 that lowered the price of my home in the first place I have to sell the home at a reduced rate. Now this gets complicated about the income level of the next borrower right now VHFA is saying we will tackle the administration of this to make sure that next borrower is income eligible but it does get very complicated because if the home appreciates at a faster rate than incomes appreciate it's possible that that $60,000 five ten years from now will mean that that home is no longer affordable to a median income buyer and so that's why the language I proposed talks about using the same idea that we use in the state tax credits which is for every time that we can keep that home affordable we will do that and if it's not possible for that home to still be affordable within these income parameters that you all set then that subsidy comes back to a pool and we redeploy that subsidy into helping another home that is similar to how the state home ownership tax credit works now that there is an option about either retaining the subsidy in the home and having it be a shared equity model where it grows and is successful or that subsidy gets paid back into a pool that gets redeployed just like with our down payment assistance program that money comes back to VHFA and we redeploy it when we get it so we are retaining the value of that subsidy there is not a homeowner flipping homes or walking away with public subsidy as a result of that what the homeowner does get as a benefit is they get to live in that home and earn that appreciation during that time that maybe they wouldn't have otherwise been able to buy a home without having that subsidy there. So it might be cleaner to keep the subsidy have it paid back immediately with that initial homeowner and have VHFA or whoever then then keep tabs on that affordability subsidy in a way that will be lost I think over time if it's just done in the market but if VHFA is willing and able to track individual homes like that it would be it would mean that that affordability subsidy could be applied to every purchase going forward of that home. Here's why I want you have a question Senator Brock. I did and Mara I apologize I have missed part of your testimony since I'm trying to be in two meetings at the same time with limited success my question is is this situation that is the driver for all of this is this a situation that is unique to Vermont or is this as I suspect a situation that's national? It's absolutely national and that's why the Build Back Better framework had a tax credit for a similar effort and my peers in other states we are all talking about this I will say that Vermont would be a leader though in actually having an additional tool to address this there are some other states that have done similar things but a lot of programs a lot of lawmakers are comfortable with helping the individual buyer and are less comfortable with actually moving the market in terms of the home building stock and so in that way we are doing something unique and it would be definitely something I think other states would be looking to I think Commissioner Hanford can speak to the fact that when the governor put this in his budget address that there was a lot of interest from not a lot there were a few other states that started reaching out to be like wait a minute what are you doing tell me more and I'm getting that similar kind of interest from my peers that lead other state housing agencies. I was going to be my next question is whether or not other states have either a adopted similar kinds of measures or whether or not there are any other solutions that other states have have implemented that could also begin to address this problem. We've been looking at that I'm on the board of a national association of all the state housing agencies Maine has a new program that's innovative it's a much shallower subsidy and has such limits on the price of construction that can be covered there's a part of me that is worried that they're not being realistic and that maybe their funding they won't be able to find buyers who can build homes as modestly as they are hoping will come online but that's a new program so there is a bit of wait and see there and we're regularly talking with Maine about the development of their program and then in three weeks I'm going to be with all the other state housing agency directors and this is a topic for our three days together to dig into who's doing what but I'm I'm regularly talking with other state leaders to find out California and Massachusetts are building programs like this but California and Massachusetts are very different than Vermont and we have different frankly housing values the idea of perpetual affordability is not a mantra in other states the way it is here and so building in that permanency to the subsidy is very unique other states are not doing that they are just buying down subsidy and they're very comfortable with helping one homeowner knowing that there's some kind of provision they have to stay for five or ten years but after that they're letting that one homeowner be the beneficiary and not expecting future generations of home buyers to similarly benefit that's a difference in Vermont that our values and housing policy have been centered on for so long making sure that Vermont is affordable for future generations which is different than what we see in other states and then home prices escalate and and housing then becomes out of reach sometimes well I guess one of the questions that that I would have is sort of an economic projection question is this a situation that economists expect to continue or is this in effect a blip that may be COVID related and then with that question in mind by creating these kinds of subsidies do you create a situation that is in effect self-perpetuating in which the market will never catch up to what people can afford because it doesn't have to if it's being subsidized well that's interesting so I do think that no one likes to be perfectly clear about the future but I do think we all know that rising interest rates are coming and that has the potential to soften our market some but softening such an overheated market may bring us back to where we were a year ago but maybe not two years ago so it so I do think that interest rates are going to really impact affordability and home building the this is still going to be a fairly modest program knowing that we have been under building homes by thousands and thousands of units every single year I don't anticipate that even $15 million investment will impact the market to the extent that you're speaking of and that it could create that kind of self-fulfilling prophecy and so I'd be very comfortable with this 15 million I mean Tom Getz said on Friday that he's prepared to apply for I think he said 20 or 30 percent of this money right off the bat just in his own developments that he's looking at and so this will not likely change Vermont's housing landscape to the extent that I think the worry is I hope it helps I hope it makes a difference but I don't think it's going to all of a sudden depress housing values as a result. Senator Rom. Thanks Mr. Chair so I mean first of all I just want to say I think I think we misunderstand median if we start to get to 140 percent of median income the difference between who has a middle income in this state of $60,000 versus who makes $90,000 is a really big difference in terms of who we're helping 120 percent gets us up to $75,000 and with the first time home buyer tax credit as I recall in its first year at least it was helping people buy homes who were at $60,000 of income and so I just think those are truly the folks who are living here are renting and are trying to afford a home and I wouldn't want to see it go past 120 percent of median income so second of all I just with any money we're putting into housing in the state right now to developing new housing I'd also like to hear more about how we're ensuring that it's the right type of growth for the state that it's on transit oriented you know pathways and is helping people get to work you know I know that V-HIP is in is for rental housing what's frustrating is a lot of our blighted properties you know that we're talking about for V-HIP I feel like would still be great places to invest in you know creating more ownership opportunities as well in core downtowns and village centers new neighborhood development areas are there any parameters right now around where the housing would be built so that we're not developing on new green spaces where people can't use public transportation there's several things first there are not only state but local planning and zoning that you know discourages development and there are areas planned for growth and so for any development to be approved we already have those protections in place through the local process additionally VHFA has always again 36 million dollars a year we we have competitive rounds for our funding and we look at those questions to make sure that our housing policies are matching what our funding decisions are so we look at depth of affordability longevity of affordability placement transit oriented energy efficiency and the like and we then judge projects accordingly and so I know I think VHCB was the one touted in it but VHCB and VHFA's investments overlap considerably and the Vermont Natural Resources Council has a report that says that VHCB's investments are among the best smart growth investments we can do and so working so closely with them I anticipate that this would be similar the but that's why I proposed some language you know the governor's budget request I think was of two sentences long and it didn't speak to some of these housing policy priorities and so what I proposed last Friday and that made it into 226 I think is the number is building out those and saying that VHFA would have a program plan that looked at those issues and housing policies and ensured that investments were made in accordance with those sorts of principles that you're talking about senator that's a great question senator i'm a big fan of killing two or three birds with one stone and we're talking about you know what we can ask of the developers who get this money that helps sustain their business and we could put a priority on those developments being in the right places as a requirement for the money I'd be interested in the person who was in last week where you said he could take 30 percent of the money and choose it already I wonder where his developments are that where he can use it and I wouldn't be surprised if some of them are in the suburbs and whether those suburbs are good or bad I'm not judging yet but it'll be interesting to know I wouldn't I wouldn't want to see this kind of incentive go to non smart growth areas because that's where I draw the line I mean we need housing but we don't need housing at the expense of everything else senator brock one thing though that I think that puts a somewhat of a I won't say a break but a control on the concept of quote smart growth unquote is that we don't want to wind up creating a situation in which we have two vermonts a smart growth vermont that is suburban in nature and densely packed and the rest of vermont the rural vermont that people actually live in I think that we may need to make sure that what we do is is balanced in terms of our approach so that we don't leave communities behind the point okay so we're way behind time I know josh is with us frequently I want to hear from Michael but josh if you can you spoke to us a little bit about this before one question I have for you and if you could try and limit your testimony to five to ten minutes or so that would be great but when the governor proposed five million dollars in budget adjustment and ten million dollars next year that is my understanding is that is that general fund and is it considered base funding or is this one time funding good morning josh handford commissioner of remote department housing community development this has always been arpa funding why we had a sense of urgency and felt like this would be something that should should move quickly it's you know an investment we've had substantial impact because of the pandemic on our housing stock and our housing prices and home ownership is out of reach so that has been a proposal since the beginning and the five million in BAA was to get this started quickly because we already had developers lining up projects for the spring and you know so many people are demanding us to take action as a state to address this housing need for whatever you want to call it missing middle modest it's it's really meant for folks that are in that range of 60 to 120 maybe up to 140 I understand there could be a debate about what is the right limit I think that the beauty of this program as it's designed is if you're going higher up the income scale there's less subsidy that's how it's designed and modeled after the federal program if you are moving into those higher income ranges you're getting less subsidy because you can afford a more expensive home and to speak to the comment about the profit I think the challenge is no one's building homes that they can sell for $320,000 because there is no profit to be made you will lose money and so they're not building it these homeowners and developers have no problem selling homes they're just selling homes for over $500,000 and they can keep doing that and so the ones that want to participate in this program are raising their hand and saying we want to build homes for working-class homeowners and not vacation owners and wealthy retirees because that is what they're having no problem building and so the question is here do we want to subsidize that sort of development to help working-class families be homeowners in Vermont and that's what we're trying to do you know the Leica Cities and Towns did a survey this is their number one issue you know I know the the pro tem spoke at that and said they supported the missing middle housing concept and you know my larger question here is you know is this something that we can you know move quickly and attach s210 or is this going to go through the ominous housing bill and you know I think that we have relied on VHFA the largest affordable housing finance organization in the state to develop a concept that will work for the market and that the governor has proposed identified the need and proposed a pilot and a solution to address it but the reality is we need to work within what the market what the financial instruments and how this will work and VHFA has prevented as presented the model that we believe will work and that we should should take action on quickly in order to get ahead of this and to be able to use the ARPA money within the timeframes that we have and to address this this issue quickly so those would be you know my main points a little bit on senator shunner brock's question about you know what else are states doing and this is a state a national problem but I think our levers in Vermont we don't have that many to pull on and some states they're not seeing this level of rise in crisis because they build housing cheaper naturally whether it's the permits the land costs the labor rates they're just more affordable to begin with so we have to tackle this with this development subsidy side solution at this point unless you know somehow we changed our our approach in Vermont to building and construction and allowing it to happen with less costs associated with that but that's a long long process that we haven't seen much success in so this is our option that we're left with is to subsidize the building to bring these homes down to a price that working class Vermont families can afford because they want to stay in Vermont but they want to be homeowners they should be exiting the rental market to free up those rental properties for lower income folks to be successful as well and welcome new families into Vermont welcome the you know the diversity in the workforce we need but they are struggling to find a place in Vermont without solutions like this to try to bring more units online so you know my my plea is that this this should be moving fast I mean we have the money we have a limited timeframe it's not a pressure on the general fund and the concept is developed with our largest affordable housing finance agency in the state at the helm doing what they've done for 40 years and so you know my plea is to act quickly on this so we can maybe see some homes benefiting from this under construction this summer but but the time is slipping thank you Josh as usual you're a very articulate cheerleader for housing and that's good because you're the commissioner of housing so that's great I just one question for more or for you does this require that the financing of the home come from VHFA or could someone go to a private lender no okay no no tie in with VHFA financing uh center Clarkson you're muted you're muted I'm trying so hard and uh you know it's a good thing you don't get to hear all the remarks that go on uh as I listen uh this proposal as I see is is hoping with the 15 000 that is envisioned to to subsidy to subsidize 400 over 450 homes is that right that's roughly what I hear see here um so this 15 million um I I I I don't think those are maybe you're looking at it it has funded uh so this is what it's building on what I guess than what my question is is what are you what number of homes are you envisioning 15 million yes won't get us so I see you're you're looking at the past state tax credits to build a portable home ownership since we first asked that the production so this will depend if we serve more folks at 60 to 80 percent we're going to produce less homes because there's a deeper subsidy if we're serving more folks at 100 120 percent more homes because it's less subsidy in each home and I think you know that gets to also the values of how this works with shared equity model and others that you know some of these other models have a larger subsidy in them and with 15 million it's scalable depending on um the price point and the income of the eventual home buyer um for these homes I get it but you came up you came to 15 million for some reason is is there a number of homes you're hoping do you have an objective with the number of homes you're trying to to build and or create for people in in this as many as possible at the least cost I mean where the 15 million came from is as you look back to when the pandemic first started and we started using kroner relief money to instantly do shelter and then we moved into arpa we worked among the whole housing recovery group all the housing agencies and said what is our first priority how is the most vulnerable those are experiencing homeless those at the lower income and we've already put over 200 million towards that effort and that was first now we're moving into this middle income need and this 15 million is what we felt we could pull out of the system to support the most vulnerable that we need to serve and and this is what we have at this point to to dedicate towards this I wish we had more um but this is and this is a new program so if we were to suggest it I mean we could use 50 million here but um we're starting out with with the program development to um get it underway test it and see if we can gain some efficiencies before we're asking for even more funding and that's why it's called a pilot and uh you what's the time frame in which you think you need to see results so if we we're looking at a report back in by january maybe too soon but by a year from the launch depending on whether it's sooner or later depending on if we can get stuff in for this summer's construction season right I mean I think you know the reality is there are developers that are going to build houses this summer are they going to be affordable to work in classroom honors or are they going to be $700,000 homes and if we can get this money to the point where we can offer that and say we want you to commit to building homes that are going to sell for 300,000 now before you start building them designing them as a five bedroom home then we'll get those starting construction this summer but if we can't have a program to commit to those builds that are being designed and developed right now we won't have results that for you next next january we're clear on what you want money now I know I got thank you josh uh let's move to michael monti and then we'll take a break afterwards uh michael welcome again it's good to have you here and anxious to hear your on the program as it's evolving thank you senator and I appreciate it and let me say I have a half hour speech I'll try to shorten it down to five minutes so that you can get through it faster thanks for the opportunity to testify again on affordable housing I think I was here a month ago so ago and we we talked about the various benefits of the shared equity home ownership program I think it's a tried and true program and it creates lasting benefits for Vermont communities and home ownership for for for monitors it works we know it works in my testimony in an early january I covered many of the issues that I just want to briefly stay very quickly and just as a reminder senator we launched a shared equity program with your help back in the 1980s and that's that's that support has been always appreciated the program has created over 1200 new homeowners even though we have a stock of 650 homes a shared equity model allows that home to become permanently affordable and is never ever lost to the market the it's builds wealth over the last five years of the folks who did sell their homes the average was 38 000 that they pocketed and 80 of them went to buy homes in the regular market that is that is our shared equity model and that is what has worked and not only that but you know we're serving people up to 100 percent our average is a little less it's never 60 percent it's much higher it's higher than that and we're and we know around the state people are serving people up to 120 using shared equity and so we did this basically by creating no long-term affordability by by ensuring the public investment never gets lost we could have done more this is predominantly due to the lack of a good national program or state program that does what the low-income housing tax credit does which is basically bringing a fairly large equity amount and allows for more housing home ownership if we had a program like that more homeownership would have been built historically for the last few decades we have been able to model that with a new market tax credits but the the Build Back Better Program which had a national home ownership act was going to is potentially could still provide that kind of tax credit for that I think is trying to be replicated here the only issue I have basically at this point with that program being used as a model that program was really for very moderately priced homes it really was for homes that were remarkably enough for quarter million dollars in terms of value they weren't really for substantially priced homes as an equity but it was providing a decent amount of money about a third of the cost of construction to support the development of home ownership so it's true that the cost to build new start homes often exceeds the appraised value and we support the funding of this value gap we think that to some value there we could see in our own program at Butternut Grove in Winooski for instance that that would have been a significant opportunity that the appraisal value of those homes were standard for the thousand the cost of constructors 400,000 and I'm using like more round numbers and you know we're selling those homes for $150,000 to $180,000 significant subsidy and the reason why we're able to do that is in part because of some of the some of tax credit equity that we have used called the new market tax credit which is not available around the state it's only available in very very specific locations and we're able to do that Winooski itself. So you know we we do support the notion of sort of like the programs like the VHU FAs down payment assistance program the equity builder program of the Federal Home Loan Bank, the Senator Ron Hensdale's program for a first generation homeownership those those sort of small amounts of initial subsidy for an individual to help buy a home an increase in that makes some sense to us as well so the appraisal gap and sort of this initial sort of dollar amounts that could be used in the market but would go really far with a shared equity program model would be would be a valuable I think tools for us to have we're broadly concerned about creating a dual tier system that you know low moderate income people get the shared equity homeownership program and then somebody who wants to buy a $700,000 home get something a different kind of subsidy and what does that create and I think you have to I think we have to sort of understand that question quite a bit because right now the the model program that you have in the state of Vermont which is replicated across the country and the world right now is to really focus in on um 100 you know less than 100% in Chinden County because the incomes and 120% around the state and to really go to a place where the affordability needs to now support people who could try to afford such an expensive home I think gets away from the notion that everywhere in my lifetime and most people lifetimes people start would start homes that are more moderately priced and how do we really make that happen and actually what's what the shared equity model typically has done for decades now I also want to say that we believe that program works best when affordable housing providers create joint development proposals with private sector developers we've done that quite often and right now we have agreements with Snyder homes S.D. Ireland sterling homes and Habitat for Humanity where we're going in and doing affordable housing deep sometimes deeply affordable housing with Habitat but also creating and seeing the creation of more modestly priced homes in sort of joint development work and so where we think that as a model is something that you should consider now I was going to tell you a story about the creation of a Brownland Community Land Trust just give me 30 seconds and I'll do this quickly when it was created the city council had republicans democrats independents and progressives all four parties supported the creation of the Brownland Community Land Trust and the shared equity model part and because it was support for home ownership in part because affordable housing was the flag waving thing that that the progressives and democrats were supporting but also because republicans believe that when you provide a public subsidy you need to capture that public subsidy and make sure it was used again that no one individual walked away with a huge pocket of change as a result of that gift that the public investment needed to be there but it needed to grow not diminish and when you when you don't when you do shared equity what you are doing essentially is growing the public investment our initial public investment now has doubled in value our homes become more affordable not less over time and then individual who is able to buy that home again can afford that home again as opposed to that home coming off the market the person who was supported this mostly said I mentioned his name to you at Allen gear republican attorney from the new north and saw that the north gate housing project in their north gates across the state was potentially going to be lost to permanent affordability permanent affordability became his mantra his mantra was valuable to communicate that to the rest of the city and I think now to the state that permanent affordability was an essential element essential policy imperative that if you don't do that the public investment does get lost and when you do that you have north gates flipping people being displaced and and neighborhoods gentrifying if we didn't do this in the old north end for shared equity home ownership the old north end would now be a very high income neighborhood and moderate income people would not be able to live here I work across in the king street youth center this neighborhood has permanent affordable housing and it's mostly rental but if it was home ownership and we did shared equity that housing would not have been lost over the last few decades because we would have created that permanent affordability so I want you to just pay attention to that policy imperative I think it's a critical issue and we should not lose it I think as you sort of develop this program I do uh the north gate situation that was that was the state or somebody had to bail out that program after the 20 year lease so whatever and there was there was VHFA VHCB in part supportive but there was a lot of funds that came to go in and bail them out and I'm not familiar of all the gates around the state but there were plenty of them where that issue came into play and that became the reason why people said when you make the public investment don't lose it let it grow so is your is your message to us Michael that the way this program is designed right now it doesn't provide enough in the way of perpetual affordability well I would I would in all in all fairness tomorrow and and josh we've done who are really working hard to try to create I think you know a program that works I would say just I would ask you to be careful and watch that as a policy perspective I think that becomes critical in your thinking about how it should work and I think that that's that's that's what I would offer without getting into the detail of the without getting without getting into the details is it workable to put a stronger perpetual affordability element what does the whole thing fall apart at that point well in my in my case we have a couple hundred of home ownership units that we'd like to build we're hoping that we in fact you can either create that with a Build Back Better National Home ownership Investment Act that that comes through we're looking for sort of a third of the cost of construction tax credits when you do that you have a third comes in tax credits a third comes in the homeowner with mortgage and if you know and a third from other some of the resources you could actually build what we have built in butternut grow and create three these beautiful three bedrooms two two bathrooms homes they are condominiums and not single-family homes in the hill somewhere around 10 acres in ramon but they are great homes for people yeah and we have we have we have we have 40 or 50 people who are lined up to buy those 20 homes right now we haven't even begun to do any major amortizing i guess where i'm having trouble understanding i think what morrow was saying sort of feels to me like the education formula with phantom students there's this this missing subsidy that in some ways is not real it's more driven so you can't take a piece of that equity because it's you need the money to build the house but it's not there after you build the house so how do you share that right yeah i get well i so let me just say that the proposal the part of the proposal that we really appreciate is the distinction and difference between you know if you have guidelines to say the price the house has to be moderately priced or moderately sized you know you know and and if you're if you have a home that like that and it and you try to build it for uh you try to build it and it not only appraises for 350,000 or 300,000 but it costs 400,000 i appreciate that if there was a program that supports shared equity programs or others around the state uh the private developers around the state that that gap is real and that would be valuable and that gap it's really it's really when you give the money to the homeowner and you and you create that set of conditions where it gets to be very difficult i think but i think you're on to something michael because i think it's that gap that needs to be set in stone once once the home is built and we're clear on what that gap is and then that gap is set as the affordability piece the value gap that is then paid back to the lending institution or whoever's going to do this and track that house over time because it strikes me that if it just floats with the market it's never going to stay permanently affordable which is critically important and and i so i think we need to figure out when you set that value gap and that's what goes forward anytime in through the sale of the house i i and i just have a question for you which is did you just describe a few minutes ago a a a uh afford a house that you're able to build you're basically doing a $250,000 subsidy on a house you're able to sell for 150 you described a model where it cost to build 400,000 it was appraised at 350 and you sold it at 150 you guys we're constructing it right now so we're not we haven't sold anything yet but yes but for this one in particular that's a huge subsidy to well it is your subsidy but what we're having is we have you know and the prices are ranging between 160 to 180 or 190 in that range but that home now when that family moves in will be able to probably afford a home that is closer or less than the rental market they're now going to be able to build wealth they're now going to be able to build equity right and when they go and sell it'll stay affordable so that that gap right now becomes gets used not just once but two three four times i guess what i'm trying to say is i'm identifying a gap here in a subsidy of $250,000 when they sell that house for if they if they buy it for 160 they sell it for 200 they're they're going to owe more back in a subsidy than they can afford i don't know so well no it doesn't without programming it doesn't it won't work that way what will what will happen is that the the appraisal let's say is at 350 in five years the appraisal is going to be worth 400 400 400,000 just round numbers they'll get a piece of that shared equity will retain the rest of it to keep it affordable and that's that becomes a distinction of difference so that the initial public subsidy stays with the home right no i get it i just am so impressed by the huge amount of money that it's you're selling it or so much i'm i'm impressed and sometimes not that not happy as well senator that the cost of development is so high at times sir other questions for michael at this point senator brock i'm just i haven't even thought entirely through my question yet but i'm thinking of just the issue of inflation and the effective inflation on the increased value of that home over time and so if you sell that house five six seven years later you're selling it at an appreciated value on the one hand but the the the value of the money that's been put into the house as a subsidy hasn't changed and again is is going to be smaller isn't well so over time our homes become more affordable because as we share 25 with the home owner the other 75 stays with the home so we could show that in fact that our homes started this affordability and continue to get more affordable over time we're actually able to serve even lower income people that's where our numbers are at 70 70 or 80 percent of median income is principal because we have these stock of homes that we could sell over and over again the first time time we buy a home the numbers are a little higher but it becomes more affordable over time now the just is that because the increase in value of the home or is a factor the increase in value of that home over time versus the increase in well theoretically the entire market is appreciating over time that's right yeah the end again over the last five years and the individual is able to the average pocketed cash has been 38 thousand dollars now that becomes you know the the the appreciated value but again remember the homeowner is also paying down their mortgage right so they're making that they're making that that monthly investment in their property they don't own their property the bank does and they're now paying off and beginning to become an owner of the property fully so that paying down the mortgage as well as the some of their the shared appreciation really puts money into a homeowner who was a first-time home buyer you know moderate and moderate income most of our folks are they are teachers and nurses they're not you know they're not people who are they're not they're not they need to be making money they need to be credit underwritten they have to go to a bank you know so they are working in they are working from honors and the portfolio properties that we have right now a single-family homes condominiums their homes in St. Albans they are homes you know throughout throughout Chittenden County so I think you know and it's a variety of different types of homes it is not just one type of home and frankly we the demand is great the number of folks who want to buy homes because they they can see this as their way of getting out of rental and their way of building equity and wealth you know you've talked about obviously this is a serious problem and this in terms of what's being done the amount of money is is almost a drop in the bucket in dealing with it and it just seems to me that you know the problem is the cost of homes and one question of course is are we doing enough and are we doing everything that we can to address the gap in the first place that's creating the problem as opposed to you know are we really trying to solve this problem assuming that it is solvable well I think I think I think what we we have we can obviously but as center I don't think it's a rhetorical question your answer I think there's probably a range of issues such as you know good pay you know better income better jobs you know highly skilled jobs perhaps for folks who you know who are not going to go to college a whole range of sort of other things that you need to do in order to create a system in society which has fairness and all levels but for home also just in terms of the cost angle and you know if there's anything that's almost a summer study committee or something is to just deal with that cost gap as to why it costs so much more to build a house in Vermont that it does in a number of other states and we know regulation and things like that are factors but the real question is is there more that we as a state ought to be doing to address the cost angle and to get cost more in line with what people can afford instead of the other way around I agree I I don't disagree and one of the things we have found is that we are good at certain things but we know that the private sector does well and when we partner with them we're able to work in and do a lot of value engineering and bring the costs down to a reasonable level our the private developer folks that we are working with are pretty smart and capable to create I think decently priced affordable homes and where the problem is based on what people can afford right now they're not able to do that well the gap is wide you now that's why I asked the question earlier Mara is as we look ahead from the standpoint of the economists looking at where we're going is this a blip or is this something that's going to essentially go on forever and we're going to have to subsidize more more and more and I worry about those people who don't qualify for subsidies as to how they afford houses in Vermont today I don't necessarily have the solution but I'm just wondering are we working on the solution or are we nibbling around the edges with subsidies that don't solve the problem that's okay I think there's a committee yeah and that's actually Senator Brock has been my mantra as well in terms of the omnibus bill we can throw a lot of money at housing and I do think money is probably the king in terms of getting people at home but there are policies we could do to lower the cost as well and that's what a lot of the provisions in this bill are directed at trying to do but how you characterize it could just it could be characterized as nibbling around the edges so I don't you know I don't know what else we could do some of them will provide more certainty to developers quicker development and save some costs but I we're all struggling with that question Josh go ahead but we really need to take a break so quickly I just wanted to address Senator Brock's question there's at least two reports in the last three years that try to answer that exact question and they're out there we have VHF has one two of them we've hired outside consultants and it's a whole range of things it's our land use regulations it's Act 250 it is added costs for increased public policy goals that we that many people share we have higher um energy efficiency standards when you build we have locational requirements that add costs but you've taken these on over years and years for good public policy they have a cost it's what how do you value those costs and those benefits the same so that that information is out there um there's no one lever that you can pull that doesn't create other challenges that makes this all easier um obviously more funding into the system could get around some of those but those have been studied and um and developers have responded with what the cost drivers are and so we'd be happy to share those reports again well I've read some of them and I share those concerns but you know we're now the question that I ask as we look at all of this and the situation we're in is are we sacrificing the good for the perfect we we set up a system that is great in terms of um environmental restrictions in terms of review in terms of of building installation and all of the things that we have in this and we created a housing market a housing stock that is that such that nobody in Vermont can afford to buy it in the normal marketplace and that is not a good place to be and I in terms of our concentration on solutions the solution is not going to be to continually add more and more subsidies particularly as federal money goes away and where's the money going to come from as this becomes an ongoing static way that we solve this problem okay we're going to and I just have one very quick question for josh we did our housing tour and we were down in white river junction or thereabouts there was some creative developer down there who built these who built these very tiny units and he got good money for them but people were willing to pay for very small have we seen that happening around the state or is that unique to that area no there's creative developers out there doing that work all over the place there's one in downtown middlebury happening right now you know but the costs are going through the roof they're able to get a lot of money for those and you know unfortunately he had another project in white river junction that was stalled by act 250 you know a budding landowner appealed it and it cost him two years of development time and risk and money because it wasn't affordable housing it was market rate housing so it couldn't qualify as priority housing even though they were in a designated downtown um some people don't like to see lots of development and housing popping up next to them and we have a system that has a chance to appeal that that adds cost and risk okay all right well let's take a break could the