(Host) According to a new report, a housing "tsunami" has hit the state of Vermont.
New construction starts have plunged 44%, prices for existing homes have fallen and consumer spending is slowing down because of concerns about the housing market.
The conditions could force lawmakers to raise the statewide property tax rate for education next winter.
VPR’s Bob Kinzel reports:
(Kinzel) For the past 8 years, Vermont’s housing market has been on fire and it’s been a driving force in the expansion of the state economy.
During this time period, new construction increased dramatically and housing prices in many towns went up by as much as 15% a year.
But in the words of the Legislature’s chief economist Tom Kavet, "the party’s over." Kavet told members of the Joint Fiscal committee that investments in new construction have plunged in the past year:
(Kavet) "The drop from that peak of about $710 million down to the present level is about a 44% decline. That’s a swing of more than $300 million. So you take $300 million of investment out of the Vermont economy just like that, you have a lot of multiplier effects associated with that. And that will definitely be a drag on the economy. The worst thing is that it’s not over yet. It’s got a ways to run."
(Kinzel) At the same time, Kavet says there’s been a dramatic drop in housing prices:
(Kavet) "There’s been a significant deceleration in pricing increases. And that’s likely to drop close to 0 or below 0 in the near future. That’s what going to impact the property tax. This is a leading indicator, a very good leading indicator of what happens with the grand list in Vermont."
(Kinzel) Senate Finance committee chairwoman Ann Cummings says these conditions could force lawmakers next session to increase the statewide property tax rate for education.
(Cummings) "As grand lists fall, if they fall, there’s the possibility we will have to rather than decreasing which we have every year since we put in a statewide property tax, we will have to increase that tax rate."
(Kinzel) Cummings says she’s also concerned about the fragile condition of the state economy.
(Cummings) "Both nationally and in this state we’re still growing, but definitely not at the rates we were, and the concern that any major impact could be just enough to put us into a recession. They don’t think that’s going to happen but that’s the concern."
(Kinzel) The economic report says the drop in the housing market is having a negative impact on consumer spending in Vermont – a situation that could result in lower revenues from the state sales tax during the 2008 fiscal year.
For VPR News I’m Bob Kinzel in Montpelier.