Approximately one third of Vermont’s housing units are rentals, so many Vermonters are tenants as opposed to homeowners. This article will take a detailed look at prevailing market rent levels in Vermont and how they’ve changed over the last decade.
By way of background, the previous three Informed Vermonter articles reviewed house prices, property tax developments and underlying homeowner costs. In summary, house prices in Vermont have been stagnant for a decade and, in most of the geographic areas of Vermont, are lower today than they were in 2007/2008.
Over this same period, Vermont’s property tax rates increased by 29% on average. Other homeowner costs, however, were greatly reduced. Mortgage interest rates declined by almost 50% and fuel oil by 30%. On balance, total annual homeowner costs were probably quite stable over the last decade.
Vermont’s landlords would have experienced all the housing market developments summarized above. So, in the context of these underlying market trends, what happened to rent levels?
Vermont Rent Levels
Each year the US Department of Housing and Urban Development (“HUD”) surveys Vermont’s rental market and determines the Fair Market Rents for purposes of the HUD Section 8 Housing Choice Voucher Program. These are the rents private landlords are permitted to charge if they have tenants qualified for HUD Section 8 subsidies.
The HUD authorized fair market rents for fiscal year 2018 are summarized below, by county.
FY 2018 Fair Market Rent HUD Section 8 ($/month)
|County||0 Bed||1 Bed||2 Bed||3 Bed||4 Bed|
|Chittenden & Grand Isle & Franklin||920||1,121||1,442||1,921||2,025|
Source: HUD, Fair Market Rent for HUD Section 8 Housing Choice Voucher Program, FY 2018
The table below shows how much rents in Vermont have increased since 2008.
Compound Annual Growth Rate 2008-2018: Rent for 2-Bedroom Housing Unit
|Chittenden & Grand Isle & Franklin||3.26%|
Source: Calculated from HUD, Fair Market Rent for HUD Section 8 Housing Choice Voucher Program, FY 2018 & FY 2008
The Vermont Housing Puzzle
On average, rents in Vermont have gone up in excess of 2.5% per year since 2008. During this same period, the US Consumer Price Index increased less than 2% per year, so rent increases in Vermont have been well in excess of underlying inflation.
As discussed in an earlier article, average house prices in all but four counties of Vermont are lower today than they were in 2008. In an environment of low inflation and declining house prices, how is it that rents steadily increase?
Perhaps the demand for rental housing is relatively high compared to the supply. There is evidence this may be the case in Vermont’s vacancy rates. According to the Federal Reserve Bank of St. Louis Economic Data, the vacancy rate for Vermont rental properties in 2017 was only 3.6%. Anyone looking for a rental is limited to only 3.6% of the rental housing stock at any point in time. For the US as a whole, the vacancy rate was double Vermont’s at 7.2%.
Building permits also suggest a tight rental housing market. The US Census Bureau tracks total housing units and building permits. Looking at the US as a whole, new building permits were 0.9% of the total number of housing units in 2017. In Vermont, this ratio was only 0.5%, almost 45% lower.
It would appear that the combination of low vacancy rates with low growth in new housing construction contributes to a landlord friendly rental market in Vermont.