New legislation would exempt small, rural housing developers from paying unreasonable income tax on grants they receive to help address Vermont’s housing crisis

WASHINGTON, D.C. – U.S. Senator Peter Welch (D-Vt.), Ranking Member of the Senate Agriculture Subcommittee on Rural Development, Energy, and Credit, this week introducedthe Supporting Small Affordable Housing Developers Act, new legislation that would exempt grants supporting affordable housing development from taxation to empower small, rural housing developers to build more affordable housing. The bill would also exempt income from the sale of transferable state tax credits from federal taxation, allowing developers to put more proceeds toward housing development. 

“The nationwide housing crisis has been absolutely brutal on Vermont’s rural communities, making it harder than ever for folks to afford a home. Small developers like Village Venture, which devote its time and labor to building affordable housing in our rural communities, shouldn’t be penalized for helping us address this crisis—yet that’s what’s happening under our current tax code,” said Senator Welch. “I’m leading this legislation to right this wrong and ensure small and rural housing developers aren’t forced to bear unreasonable financial burdens for building desperately needed affordable housing.” 

America’s nationwide housing crisis has hit the state of Vermont especially hard, with median home sale prices surging 40% since 2019. In addition to skyrocketing housing costs, dwindling market supply has made it even tougher for lower-income families—including the nearly 4,000 Vermonters facing homelessness—to purchase a home. Vermont is projected to need an additional 24,000–36,000 housing units by  2030 to replace outdated housing stock and meet demand.  

Rising inflation and labor costs make it increasingly difficult for developers to build affordable housing. This has been especially devastating for the state’s rural communities, where multimillion-dollar companies are buying up homes meant for families. 

The current U.S. tax code creates hurdles that discourage small, local developers from building in rural areas. In 2022, Vermont-based Village Ventures received $1.1 million in federal grant funds to support the development of six new affordable housing units in Bradford, Vermont. After investing roughly $1.3 million to develop the property, Village Ventures faced over $500,000 in income taxes on the grant. The completed building was only appraised at $650,000, leaving Village Ventures with a roughly $400,000 loss.  

“In rural communities, affordable housing gets built by small, local developers, not large firms with tax departments. We built six units of permanently affordable housing in Vermont, and every dollar of grant funding went into construction. Then we were hit with a six-figure tax bill on that grant money. To pay the IRS, I had to take out a loan with my personal guarantee, and I’ll be paying it off for the next 30 years. When developers are taxed on grants they’re required to spend on construction, the math stops working and the housing doesn’t get built. Senator Welch’s legislation makes sure the next builder doesn’t have to learn that lesson the hard way,” said Jonah Richard, Principal, Village Ventures. 

Learn more about the Supporting Small Affordable Housing Developers Act. 

Read and download the full text of the bill. 

Senator Welch has led bipartisan efforts to address Vermont’s affordable housing crisis. In March, Senator Welch joined Sens. Jim Justice (R-W.Va.), Adam Schiff (D-Calif.), and Cindy Hyde-Smith (R-Miss.) in introducing the bipartisan FARM Home Loans Act, bipartisan legislation to spur rural economic growth by helping more homebuyers qualify for rural housing assistance. The Senator is also a cosponsor of theFirst-Time Homebuyer Tax Credit Act, legislation that aims to support middle-class Americans purchasing their first home, and the End Rent Fixing Act, which would crack down on companies that help landlords increase rents in already high-priced markets. The Senator is also a cosponsor of the 21st Century ROAD to Housing Act, which was signed into law earlier this year. 

The Senator’s bipartisan, bicameral HOPE for HOMES Act, which helps lower energy costs for homeowners and reduce greenhouse gas emissions while also investing in the workforce, was included as part of the Biden-Harris Administration’s historic Inflation Reduction Act. 

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