The cost of housing in Vermont is too high, driven by fierce competition for the few homes that are available to buy or rent. This lack of available housing options makes it difficult for young Vermonters to put down roots and stay here, for families to grow, and for seniors to age in place in the communities they call home. To address the state’s housing shortage and make it possible for nurses, construction workers, teachers, and young families to live here, we need to directly tackle the many barriers that make it so difficult and expensive to build new homes in Vermont.

While there are many underlying factors contributing to our housing shortage, we believe that Vermont’s lack of existing municipal infrastructure is currently one of the most serious bottlenecks preventing new homes from being built. To solve the problem of the “infrastructure catch-22” and take the next major step towards housing abundance in Vermont, Let’s Build Homes is proposing a new piece of legislation that defines what we call the Housing Infrastructure iniTiative (HIT).

In this post, we’ll lay out how this HIT proposal would work, and the way it integrates with the housing policy progress Vermont has made in recent years.

Note: For those interested in diving deeper, you can watch yesterday's testimony on this proposal that we gave to a joint meeting of the House General & Housing and House Commerce committees, or check out the slidedeck of our presentation.

The Infrastructure Bottleneck

In recent years, the VT Legislature has made significant movement on housing-focused land use reforms with both Act 47 and Act 181, which establish the beginnings of a reinvigorated “Growth Boundary” system that allows more housing growth and diversity in designated areas while protecting large sections of Vermont’s cherished working landscape.

However, as these pieces of legislation have come into effect and desperately needed housing projects start moving forward, another major hurdle has made itself clear: Vermont’s lack of infrastructure that can actually support new housing (i.e. water, sewer, electricity, roads, and sidewalks). This infrastructure is a requirement for building homes that are abundant and affordable to the average Vermonter, but today only a small percentage of Vermont is served by critical public infrastructure like this. For example, more than 200 villages lack community wastewater disposal systems and more than 100 villages do not have public water systems.

Even in areas that do have existing infrastructure, substantial upgrades are often needed to accommodate new housing. This infrastructure gap creates a predicament for municipalities and developers: without infrastructure, new homes can't be built, but funding for infrastructure improvements remains scarce. Additionally, the state of Vermont currently captures (roughly) 70% of new property tax revenues generated by infrastructure expansion, yet generally provides limited assistance to local communities trying to expand their infrastructure capacity.

For those communities that try to take on this expansion on their own, getting projects finished has proven difficult due to the high costs. The Vermont Agency of Natural Resources has stated that “While many communities have explored municipal water and wastewater solutions in the past, most could not proceed with the projects because users couldn’t afford the new rates needed to cover the cost of the project.”

And so we’re left in a circular dead-end: we know that new infrastructure that enables housing development brings expanded tax revenue in the future, but we don’t have the money up front to pay for that infrastructure in the present because the tax base is too small. This is the Infrastructure Catch-22.

A recent member survey by the Vermont League of Cities and Towns highlights the huge gap between the public infrastructure that we need and what we have funding for:

• Of the 88 municipalities that responded to the survey, 35 reported that they currently have plans to build or expand municipal water or sewer systems
• 28% have received some state funding, and 16% have received some federal funding
• The average total cost for each project is about $14 million, and the median is about $10.2 million (for municipal systems only, excluding villages and fire districts)
• The total anticipated costs from all survey respondents is $394 million and the funding secured to date is $152 million—leaving a $242 million gap just to meet expected costs for projects already in process

Introducing HIT: Breaking the Infrastructure Catch-22

The Housing Infrastructure iniTiative (HIT) is a proposal to fill these infrastructure funding gaps and break free from the “Infrastructure Catch-22”. If adopted, HIT would create a flexible, straightforward mechanism to fund new infrastructure using the following framework:

• Municipalities and builders could use up to 80% of incremental property tax revenues generated by new housing projects for critical infrastructure improvements over a 20-year period
• Eligible projects must allocate at least 50% of gross floor area to new housing
• Multiple financing options are available, including municipal bonds, alternative bond issuers, and developer-led infrastructure investments

To elaborate: the key feature of HIT is that it enables Vermont communities to build the infrastructure needed for housing projects today by leveraging the revenues these projects will generate in the future. HIT fundamentally changes the equation of infrastructure development, empowering all municipalities—from our villages to our towns and cities—to invest in themselves and break free from the infrastructure bottleneck.

By allowing up to 80% of the new tax revenue created by a project to be used over a 20 year period, HIT ensures that investments remain financially sustainable. This approach encourages development in areas where new tax revenues will cover the costs of infrastructure construction and maintenance, providing long-term benefits to both municipalities and the state beyond the 20-year payback period. Additionally, it reserves at least 20% of the new tax revenue for the state and municipalities to direct toward education and other spending during the payback period, striking a balance between supporting local projects and generating statewide benefits.

Unlike past attempts at expanding tax increment financing, HIT is strictly focused on enabling infrastructure projects that facilitate new housing construction, which is a goal that has broad support across the political spectrum. In effect, it allows the state to invest in much needed infrastructure projects without asking today’s tax-burdened Vermonters for another penny. And when these projects finish their payback period, the remaining 80% of tax revenues will flow to the municipalities and the state, resulting in a big future reward for this investment.

A Model for Smart Growth

A key consideration when building new infrastructure projects is the long term financial burden it will place on a community. At a proper scale, infrastructure can be a foundational investment in local economic vitality that more than pays for itself over time. However, if new infrastructure projects don’t properly account for how growth will be sustained, it can be a recipe for deferred maintenance and insolvency in the future. HIT is specifically designed to prevent the financial unsustainability and landscape degradation of this type of infrastructure overbuilding—or“sprawl”—by targeting projects where the infrastructure needs and the scale of the housing development are matched.

In addition, HIT also outlines geographic requirements that keep eligible projects close to existing development, helping to mitigate external spending on needs like transportation or energy transmission infrastructure, and of course restricting the opportunity for sprawl to degrade the landscape. The geographic location requirements for HIT eligible projects are:

• Tier 1 Act 250 areas
• Areas temporarily exempt from Act 250
• Existing settlements
• Areas within a half-mile of existing settlements

By tying HIT eligibility to Tier 1 Act 250 zones—with additional eligibility while those maps are being drawn—we can keep development clustered and further reinforce the state’s attempt to establish clear “Growth Areas” and “Preservation Areas”. This would build off of the intention behind Act 181 by giving even more value to the Tier 1 designation, and further reduce development pressure on Tiers 2 and 3.

When tied together with the density bonuses provided by Act 47 for projects in proximity to infrastructure, this collective framework begins to establish the Tier 1 designation as a unified toolbox for Smart Growth in Vermont. While legislation like Act 47 and HIT would establish the guard rails and a baseline for development, the open ended nature of the framework would allow every community in the state to choose what growth looks like for them, and also give them the tools to achieve that growth on their own terms and within their own means.

Additionally, HIT requires more than 50% of the floor area in an eligible project be allocated to housing, but also allows for additional uses. This ensures that housing remains the primary focus for all projects supported by HIT while enabling integrated spaces for businesses or community services where appropriate. Such mixed-use developments can further enhance and revitalize Vermont communities by creating vibrant neighborhoods that attract both residents and economic opportunities.

Strong Oversight and Accountability

The HIT proposal is designed to be a tool that would be feasible, streamlined and straightforward for any community in Vermont to use, while also protecting taxpayer dollars and municipalities. For a HIT project to move forward there would need to be an Infrastructure Agreement between a builder and a municipality that is approved by the local legislative body.

In addition, the Vermont Economic Progress Council (VEPC) will provide project oversight including:

• Administrative review of all project applications
• Annual reporting requirements
• An independent legislative review three years after implementation

HIT In Practice – A Tool For Both Large and Small Vermont Communities

The Denison — Fairlee, VT

Let’s take a look at an example that shows how HIT would allow new housing projects to self-fund the infrastructure expansions they need. Here’s a real site-plan of a project that Village Ventures is working on called The Denison that would create 26-mixed income apartments with ground-floor retail in Fairlee.

The numbers for the project break down like this:

In short, if HIT were in place, either the developer or the Town of Fairlee could take on debt to pay for the public infrastructure costs and this debt would be paid back by the new taxes being paid by these 26 new homes.

Stonecrop Meadows — Middlebury, VT

Our second example is the Stonecrop Meadows project in Middlebury, under development by Summit Properties. This project has 184 units planned, divided into two phases. The first phase—under construction now—is bringing 80 of those homes online through a massive concerted effort of many partners to secure the funding to build the necessary infrastructure.

However, the remaining 104 units are in limbo due to lack of secured funding for the $2.5M infrastructure investment it needs. Here’s what the numbers on this project look like:

While these numbers are more of a preliminary assessment than the previous example, it should be clear that opening up a percentage of that $575,000 of new yearly tax revenues to fund the $2.5M of necessary infrastructure would dramatically change the feasibility of this project, helping to bring an additional 100+ units to a compact neighborhood within walking distance of Downtown Middlebury.

A Win-Win for Vermont

In the end, this legislation represents a win for everyone: developers gain clearer pathways to housing development, municipalities receive tools to build and upgrade infrastructure, and Vermont moves closer to addressing its housing supply challenges.

By unlocking infrastructure funding and creating flexible development mechanisms, HIT offers a pragmatic and forward-thinking solution to expand housing opportunities for Vermonters of all income levels. With this initiative, the promising projects we’ve heard about in recent weeks can finally move from potential to reality, building stronger communities and a brighter future for Vermont.