Home prices have skyrocketed across the United States, and Vermont has not been immune to this trend.
The state’s housing market has experienced a surge in home prices over the past five years, significantly impacting housing affordability across the state. This trend has created a challenging environment for both renters and prospective homebuyers.
The combination of several economic, social, and policy factors has created a perfect storm, driving prices upward and making homeownership increasingly out of reach for many families in Vermont.
The Vermont housing market has experienced significant changes in recent years. Between 2019 and 2023, single-family home prices rose by 38%. In 2023 alone, the state recorded a 12.8% year-over-year home appreciation rate, the highest in the nation. Additionally, the median sales price of primary homes reached $325,000 in 2023, marking a 5% increase compared to the previous year.
Factors Driving Price Increases
COVID-19 Impact
The COVID-19 pandemic profoundly reshaped how people think about their living spaces. Remote work became the norm for many, prompting migration from urban centers to rural areas, including Vermont. The state’s scenic beauty, lower population density, and high quality of life made it a desirable destination for buyers from out of state, increasing demand in the housing market.
Limited Supply
Vermont’s housing supply has struggled to keep pace with demand. Estimates suggest a need for 24,000 to 36,000 new homes by 2029. The state’s restrictive zoning laws, environmental regulations, and slow permitting processes have limited new construction.
Rising Construction Costs
The labor shortage in the construction industry and rising material costs have further constrained building activity, exacerbating the supply-demand imbalance.
Since 2020, the costs of key building materials have surged dramatically, with concrete increasing by 15%, lumber by 16%, and steel by 22%. These escalating expenses, coupled with labor shortages and supply chain disruptions, have forced builders to raise home prices and rents to maintain profitability.
This trend has led to a slowdown in new home construction, particularly in the affordable housing segment, further tightening the already limited housing supply. The gap between construction costs and wage growth has made it increasingly difficult for many households to afford homes.
Other Economic Factors
The rapid rise in home prices has far outpaced income growth in Vermont. According to recent data, the median home price in the state has increased by more than 40% in the past five years, while wages have grown at a much slower rate. This disparity has made it increasingly difficult for first-time buyers to enter the market.
While wages have stagnated, wealthier buyers and investors have been able to purchase more homes in Vermont. During the peak of COVID, there was a substantial increase in investor-owned purchases, nearly doubling from 7.5% to 15.5%.
Historically low mortgage interest rates during much of the past five years fueled purchasing power, allowing buyers to afford higher-priced homes. While rates have begun to rise recently, their prolonged period at record lows contributed significantly to the price surge.
Vermont’s popularity as a vacation destination has led to an increase in properties being purchased for use as short-term rentals or second homes, which decreases the pool of available housing and leaves thousands of units vacant during the year.
Impacts on Housing Affordability
Widening Affordability Gap
The rapid rise in home prices has far outpaced income growth in Vermont. This disparity has made it increasingly difficult for first-time buyers to enter the market. The lack of affordable housing options is impacting various demographics, including seniors looking to downsize and young professionals seeking to establish roots in the state.
Financial Instability
Many Vermonters are spending an unsustainable portion of their income on housing, leaving less for other necessities like healthcare, education, and transportation. This strain exacerbates economic inequality and contributes to financial instability. More than half of Vermonters spend more than 30% on rent, and about a quarter spend more than 50% of their income on rent.
Increased Rental Demand
As homeownership becomes less attainable, more people are turning to the rental market, driving up rents and putting additional pressure on already limited rental housing stock. Rent prices have increased significantly, with a 3.9% rise in the last year, according to the state’s Housing Needs Assessment.
For the rental market to be considered “healthy,” the vacancy rate, or the number of available units out of the total units, should be around 5%. The state is around 3%, and Chittenden County is at 1%, which means that many renters struggle to find affordable places to live.
Outmigration
The high cost of housing is forcing many young families and professionals to leave Vermont in search of more affordable options elsewhere. This trend has long-term implications for the state’s workforce and economic vitality.
Looking Ahead
Addressing Vermont’s housing affordability crisis will require sustained efforts from policymakers, developers, and community leaders to increase housing supply and ensure diverse, accessible housing options for all Vermonters.
The state needs to look towards multiple solutions to address this complex problem. From creating more housing to partnering with other organizations and businesses, multipronged approaches will allow towns to address the needs of their citizens while ensuring that new Vermonters can find a place in the Green Mountain State.
While there are no quick fixes, a combination of thoughtful policies, strategic investments, and community-driven solutions can help address the root causes of the crisis and ensure that Vermont remains a welcoming place for people of all income levels.
