VHFA director: higher construction costs, program rules and added policy goals are driving up affordable housing per-unit prices

Maura Collins, executive director of the Vermont Housing Finance Agency, told the House General and Housing Committee on Jan. 31 that it “costs more to build housing than it used to,” and that the combination of higher material and labor costs, additional program requirements and how federal tax credit programs are structured has increased the per-unit price of affordable rental housing across Vermont and nationally.

Collins said national price data show material and labor costs rose sharply between 2020 and 2024 compared with 2016–2020, and that while increases may be slowing they have not fallen. She also raised concerns that policies such as Buy America/Build America implementation and higher insurance and disaster-rebuild costs could further raise construction and operating costs.

The practical effect, Collins said, is visible in VHFA application data: the average cost per apartment for projects in one VHFA program rose from about $286,000 a few years ago to “well over $500,000 per apartment” more recently. She used a hypothetical $10 million of funding to illustrate that the same state dollars now produce far fewer units than in earlier years — an example in her slides showed a $10 million allocation that would have built 35 apartments in 2018 would buy 19 apartments under recent cost levels.

Collins reviewed how the Low-Income Housing Tax Credit (LIHTC) system — the largest federal source of affordable rental development financing — affects project economics. Vermont received roughly $41 million in LIHTC equity in the most recent year shown on her slides. VHFA administers the state allocation and oversees two LIHTC paths commonly called the 4% and 9% credits. Collins explained that 4% credits typically provide roughly 35% of project financing while competitive 9% awards can provide about 70%, so obtaining a 9% award often reduces the amount of other state or federal gap financing needed.

Because 9% credits are competitive and limited by program allocations, VHFA scores applications on many public-policy priorities: site location within historic settlement patterns, deeper affordability (for example targeting households well below 60% of area median income), services for people exiting homelessness, brownfield cleanup, historic preservation, energy efficiency and readiness to take on debt. Collins said these additional requirements increase project costs: “If you set the bar that high with all those public-policy goals, what do you think also is happening to this housing development? It’s expensive.”

She described features that raise costs in downtown infill sites — constrained staging and logistics, unique architectural designs, first-floor commercial space that often does not cover its costs, and frequently contaminated soils that require remediation. Collins said some energy and historic-preservation investments can add tens of thousands of dollars per unit; she cited figures from prior analysis suggesting historic preservation added roughly $32,000 per unit in a sample, while energy upgrades have been on the order of $30,000–$60,000 per unit with rebates substantially smaller than that amount.

Collins also discussed project reserves and underwriting: affordable projects typically carry reserves set by lenders and investors and in some cases require higher reserves because tax-credit investors and other capital partners demand them. VHFA’s 2019 cost study recommended examining reserve expectations and other cost drivers, Collins said, and she acknowledged the agency is pursuing further research and updates to its Qualified Allocation Plan (QAP) to give projects additional competitive paths if they can demonstrate lower costs.

She credited recent state and federal one-time funds — including American Rescue Plan Act (ARPA) allocations and increased Vermont Housing & Conservation Board (VHCB) funding — with enabling use of 4% LIHTC for new construction at a scale not seen before the pandemic. Collins gave VHFA issuance figures for private activity bonds used to enable 4% credits: roughly $82 million for multifamily from 2015–2019 versus about $270 million issued since 2020, and a reported 510% increase in drawing down 4% credits after state one-time support. She warned that without similar levels of state investment, the post-pandemic surge in low-cost 4% new construction likely cannot be sustained given current construction prices.

Collins described other VHFA efforts to expand developer capacity and lower barriers to entry. Those include a rental revolving loan fund to provide more flexible state funding (not subject to LIHTC/IRS rules), technical assistance for emerging developers, and underwriting that assesses developer experience and management capacity before awarding tax credits. She said the agency is actively revising the QAP to encourage cost-effective projects and to offer additional competitive pathways for lower-cost proposals while still pursuing Vermont’s public-policy goals.

The presentation included demographic context: Collins said tax-credit tenants in Vermont have an average household income near $17,000 a year, compared with median renter household income of about $43,000 and a statewide two-person household median around $82,000, underscoring the depth of affordability served by LIHTC-funded projects.

Collins closed by urging legislators to consider that without continued state support — general funds or ARPA-like one-time allocations — the state may return to pre-pandemic levels of production even though construction costs remain far higher.

Ending: The committee did not take formal action during Collins’s testimony; VHFA said it will continue updating the Qualified Allocation Plan and pursuing research on cost drivers, and noted the agency has created loan and technical-assistance programs intended to broaden the pool of developers capable of completing LIHTC projects.