Why small-scale development simply isn't happening

Building new homes, whether to rent or own, is already expensive. The list of reasons includes the cost of labor, materials, and planning and permitting requirements. During the pandemic these costs increased, and inflation continues to apply downward pressure on housing development.

At the same time, and especially in the Upper Valley, the need for development is and must be balanced with consideration of our natural resources, including the preservation of important agricultural soils, forest blocks, and watersheds.

Jonah Richard recently compared the cost of construction in rural Vermont to New York City in his newsletter “Brick + Mortar.” Jonah is building units for less in Vermont ($147,000 per unit versus $359,000) since construction costs more in cities, but income from the units is also less. Forty percent of Jonah’s gross rental income goes towards operating expenses compared to 18% in the city, and he reports paying four times the property taxes per unit compared to NYC due, in part, to a tax abatement program there.

While construction may be more affordable in rural areas, that doesn’t make rural projects more economical. A lack of public water and sewer adds project complexity and cost. There are requirements for larger setbacks, larger lots, and lower maximum building height, all of which decrease housing density and thus profitability. Distance from interstates, public transportation, resources such as hospitals and grocery stores, and, ultimately, the time taken to get to work (or anywhere) have the effect of decreasing potential rental income and/or home sale values. Projects in small towns like Thetford, if and when they’re even proposed, often don’t happen for these reasons. This was true for a proposed housing development in the 1990s in Post Mills that Li Shen recently reported on.

In fact, small towns would stand to benefit from responsible housing development, which could stabilize K-12 student enrollment, increase village and small business vitality, and broaden the tax base. One reason property taxes are higher in smaller towns is the simple economy of scale. For example, Thetford is roughly the same geographic size as Hartford with a comparable number of miles of road to maintain, but it has a smaller tax base to draw on. Often the result is roads that are not as well maintained and/or a higher tax burden per property. Smaller towns keep taxes lower by providing fewer services and resources, such as smaller police departments or none at all, fewer recreation programs, limited public water and sewer or none at all, and smaller planning and development departments, if they even have them. This results in less long-term planning, fewer grants applied for, and fewer opportunities realized.

The cumulative result is that housing development occurs more readily in larger regional centers. In the Upper Valley, that’s Lebanon, Hartford, and Claremont. Nationally, it’s areas in and around cities like New York City, Chicago, Los Angeles, and so forth. Meanwhile, rural communities see less investment, from rural Alabama to rural Vermont. Small retailers fail to compete with larger shopping centers or the internet, schools are consolidated, and homes and buildings start to show signs of deferred maintenance or abandonment.

When smaller communities do see housing development, it’s typically higher-end housing such as luxury condos or large single-family homes. These units cater to people who can afford higher home prices, which account for the profitability seen at the upscale end of the development market. By contrast, housing developments that rely on tax credits or property tax abatement programs are lower-end and serve lower-income residents. The result is “missing middle” housing. The lack of affordable-but-not-subsidized rental units or starter homes leads to longer commutes and sprawling suburbs. Widespread gentrification is caused by an influx of more affluent people, including second-home owners, who can afford higher-end homes. It ensures that this type of development remains profitable and pushes out other types of housing. Zoning usually encourages this, since higher-end homes have a larger impact on the tax base and perceived well-being of the community. In the Upper Valley, this contributes to rural sprawl.

The economics of housing development in America have resulted in a divide between poorer communities versus wealthier communities, such as North and South Chicago. Unfortunately, when housing development is segregated geographically, it magnifies socio-economic marginalization, which includes segregation based on race and age. This lack of diverse demographics impedes labor markets, civil discourse, and vibrant communities. Perhaps, in America, it has fostered political divisions as well.

We can see examples of geographic segregation in the Upper Valley. Already, investments in lower-income housing developments pour into Lebanon and Claremont, while development in communities like Thetford are essentially nonexistent. The limited supply of housing in Thetford drives up prices and makes it harder for younger and more diverse populations to live here and therefore to enroll their children in school or support a local business. The prevalence of “single family home” zoning exacerbates this cycle, whether it’s Lebanon’s owner-occupancy requirements for Accessory Dwelling Units, or Thetford’s implied zoning distinction between a 3-bedroom single family home and a 3-bedroom duplex or triplex. The result is zoning that regulates the user (tenant versus homeowner) rather than the use (residential). Vermont’s statewide septic regulations reinforce this distinction.

While we need more housing in the Upper Valley and should build units responsibly where we can, including in our regional centers, we also need to break the cycle lest we follow in the footsteps of larger metropolitan areas and develop into a North and South Upper Valley further segregated by socio-economics and all the problems that follow.

However, endless growth is also not the solution.

Thetford’s Town Plan, which aligns with regional planning goals, emphasizes the need for revitalized village centers where denser, in-fill housing development or redevelopment should be encouraged while simultaneously protecting the fields and forests that comprise our natural, beloved, and beleaguered environment. However, this type of development, as we’ve seen across the decades, is not profitable and simply does not happen. Period. Small-scale developers like Jonah Richard, who, against the odds, has projects in Fairlee and Bradford, should be celebrated. The only relief small towns will see will come from private developers pursuing less-profitable and smaller-scale projects in neglected rural villages.

This does not mean the profit motive must be abandoned when we talk about housing development. It means that we must recognize and reward the value of social and environmental aspects that are not currently factored into the equation. There may be a smaller financial return on investment when we build in smaller towns, but the societal return on such investment is larger. Ultimately, to solve the housing crisis, and every crisis that stems from it, we, as developers, planners, and neighbors, must take on and encourage less profitable projects where the economics alone might not pencil out. It is within our power to change our local zoning, explore tax abatement options, and if and when a project is proposed in one of our villages, look for a middle road as a community so that we can accommodate more housing and increase diversity without changing the character of our neighborhoods or irreversibly damaging our natural resources.