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Vermont bankers say capital is available but costs, appraisals, permitting and federal uncertainty slow housing development
Summary
Representatives of the Vermont Bankers Association told the Economic Development, Housing & General Affairs Committee that lenders will provide capital when projects "pencil out," but higher interest rates, appraisal gaps, permitting delays and federal policy uncertainty are constraining housing and ADU development across much of the state.
Chris Stelio, president of the Vermont Bankers Association, told the Economic Development, Housing & General Affairs Committee that Vermont’s lending community is focused on how federal policy, interest-rate levels, appraisals and local permitting affect housing supply and project feasibility.
Stelio said capital is available for projects that meet underwriting and appraisal standards, but that many smaller or non‑Chittenden County projects currently “are not penciling out.” He told the committee commercial lending rates bank members reported ranged from about 6.5% to 7.75% and that a decline in the 10‑year Treasury would be needed to bring mortgage and commercial rates materially lower.
Appraisals, ADUs and permitting: Committee members and Stelio discussed accessory dwelling units (ADUs). Stelio said ADUs are often used for family needs (aging parents, relatives) rather than as a rental product, and that permitting, appraisal treatment and property‑tax impacts reduce financial incentives. On the topic of allowing projects to continue during appeals, Stelio offered to convene bankers and counterpart organizations (including counterparts in Massachusetts) to explore how lenders could be made comfortable with appeals and remediation-on-completion models.
PACE, PACE barriers and commercial uptake: The committee discussed Property Assessed Clean Energy (PACE) programs. Stelio and other speakers explained why PACE has been limited in Vermont on the residential side: PACE liens take priority over mortgages, creating complications for lenders and secondary‑market sales. He said commercial PACE models have seen broader uptake elsewhere because the cost/benefit can be captured in pro forma valuations for commercial properties.
Federal uncertainty and market segmentation: Stelio flagged uncertainty around federal regulatory changes and the future roles of Fannie Mae and Freddie Mac as market risks that affect lenders’ secondary‑market assumptions. He also described a ‘‘tale of two markets’’: active development in parts of Chittenden and nearby counties versus weak activity elsewhere, where appraisals and project economics constrain lending.
Why it matters: The bankers urged continued coordination among state housing partners (VHFA, VHCB and local nonprofits), use of rehabilitation assistance programs and exploration of tax or other incentives to make ADUs and infill projects more financially viable. Stelio said he would return with more detailed materials and offered bankers’ participation in further technical discussions.
