Meeting the moment: Vermont must invest to end our housing crisis

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During the two years in which I’ve represented our communities, Vermont’s housing crisis has been constantly top of mind. I’ve heard heart-wrenching stories of Vermonters with disabilities facing homelessness, seen tears in the eyes of constituents on the brink of losing their long-term rental home and unsure of where they would find a new place, and learned time and time again about the teachers, nurses, childcare workers, and countless others who would love nothing more than to move here to accept a local job, but didn’t because they couldn’t find a home.

Throughout these years, the Legislature has worked to address the crisis. We have invested what funds we could, much of them one-time pandemic-era federal funds intended to keep people housed during the emergency, but also to build more housing for low- and moderate-income Vermonters, to help bring rentals up to code and back on the market, and to enable homeowners to build accessory dwelling units. We’ve also addressed the regulatory barriers to housing, including through the HOME Act of 2023 and H. 687, the major Act 250 modernization bill that passed the House this week.

But the pandemic-era federal funds have ended, and while regulatory modernization is necessary, it alone won’t fix this crisis. If we intend to ensure that the communities we love remain – that is, that they remain places where a socioeconomically diverse array of neighbors can live, work, raise families, recreate, retire, and generally do all of the living that makes a place home – we need to commit to making the investments that can truly end this housing crisis and put us on a path to a Vermont where everyone can afford to live and thrive. That is why I support the creation of two new revenue streams that would be used to fund a comprehensive, ten-year plan to end the housing crisis.

The first is an update to the property transfer tax, which is a one-time tax paid by the buyer in a real estate transaction. Currently, that tax is levied at 0.5 percent of the purchase price, up to $100,000, and 1.25 percent beyond $100,000. Under the House proposal, it would shift to 0.5 percent on the first $200,000, 1.25 percent on the price between $200,000-$750,000, and 3.65 percent above $750,000.

This would result in a decrease in the property transfer tax for homes costing less than $750,000, a direct reduction (averaging around $900) in the cost of purchasing a home for families struggling to find a home they can afford. Further, the increased tax on sales over $750,000 is marginal, meaning the higher rate is charged only on the amount of the sale price over that threshold, with the cost up to that threshold taxed at the lower rates. If implemented, this change would bring in about $17.5 million in additional revenue annually on the sales of properties that cost over $750,000, while reducing taxes for homebuyers seeking houses priced under $750,000.

The second new revenue stream under consideration comes from the creation of a new tax bracket for households with annual incomes over $500,000. Currently, every household with an income over $229,550 is taxed at the same rate, whether it’s a household with two earners each earning $115,000/year, or it’s a household with an annual income of $1 million or more. This proposal would address that lack of progressivity at the top of our income tax brackets by creating a new bracket for households with an adjusted gross income starting at $500,000 per year.

This tax would also be marginal, meaning annual income up to $500,000 would still be taxed at the existing rate (8.25 percent), with only portions of income above the new threshold being taxed at the new rate (11.25 percent). In other words, if a family earns $510,000, the first $500,000 would still be taxed at 8.25 percent, and just $10,000 would be taxed at 11.25 percent. This change would raise $75 million annually for housing, beginning in fiscal year 2026.

It’s important to note that in Vermont, middle-income earners actually pay a higher portion of their income in total taxes than higher-income earners. Our system does a good job of ensuring that the lowest-income Vermonters don’t pay more than they can afford. But it doesn’t do a good job of ensuring that same progressivity from the middle class up. For instance, a family earning $140,000 per year pays a higher share of their household income in overall taxes than a family earning $1 million per year. This reality is exacerbating the challenges Vermont’s middle class families face, in housing and elsewhere.

I’m not considering these two tax changes on their own, and I don’t take them lightly. I’m considering them in the context of Vermont’s ongoing housing crisis, and in response to the Governor’s recommended budget for the next fiscal year, which proposes a nearly 90 percent cut to housing investments. That’s unacceptable. Instead of cutting all meaningful investments in ending the housing crisis, the additional revenue from these two tax updates would fund a 10-year comprehensive plan to end Vermont’s housing crisis, designed by the statewide experts working to do so everyday.

This is crucial, because any tax proposal must come with a deep consideration of the impact it will have on all Vermonters, and how it fits in with our broader need for public investment to improve our quality of life and build stronger communities. As we continue to see the impact the housing crisis has on our state, I believe these marginal changes to the tax rates for families earning over $500,000 per year or those purchasing homes for over $750,000 can help ensure a Vermont where everyone can afford to live and thrive. Our communities are depending on it.