The housing landscape across the country remains challenging for myriad reasons, chief among them the lack of new homes, which experts agree contributes to rising prices and affordability issues.
Goldman Sachs Research found that “at least 3-4 million additional homes beyond normal construction need to be built to address the shortage in U.S. housing supply and boost affordability.”
In some states, such as Vermont, small towns have taken the brunt of this issue.
AARP Vermont, in partnership with Smart Growth America (SGA), released a report showing that the state will need an additional 24,000 to 36,000 homes by 2029 to meet their population demand.
Enter the Community and Housing Infrastructure Program, or CHIP, “a statewide tax increment financing tool designed to help Vermont communities unlock housing opportunities by investing in critical public infrastructure,” according to the Vermont Agency of Commerce and Community Development website.
Many experts see this program as a way to revive small towns’ economies and address housing affordability issues.
In an op-ed published in the Rutland Herald, Samantha Sheehan, Vermont League of Cities & Towns’ municipal policy specialist and a school board member of the Granville-Hancock Unified School District, wrote that 50 years ago, the town of Hancock “was among the nation’s highest producing mill towns.”
Today, however, there are “no mills or manufacturing, not even an operating farm,” and as Sheehan puts it, that has left the town to dwindle, left wanting from everything from coffee shops and restaurants to essentials like sidewalks, bike lanes, stop lights, or lamp posts.
According to her, CHIP will help revitalize Hancock and similar towns, which have been “forgotten.”
“I want my neighbors to age here in dignity and be a part of the community they have invested their entire lives in. I want kids here to have the same academic experience as any other growing Vermonter. That means we need to build more than what we’ve lost. For the first time ever, the state has a plan for us to do just that,” she wrote.
How is the new housing and infrastructure law opening the door for small towns in Vermont to build new homes at scale?
Last June, Vermont Gov. Phil Scott signed Act 69, which established CHIP, “a project-based form of Tax Increment Financing (TIF) that will enable smaller communities across Vermont to build the housing they need at the scale they need it.”
The program, which kicked off this month, provides $2 billion to be invested between now and 2035 to finance infrastructure supporting new housing development, according to the program’s fact sheet.
It allows towns and cities “to access long-term financing without raising local property taxes; to capture a portion of new property tax revenues from future development; to invest in public improvements that directly support the creation of homes.”
Nate Formalarie, deputy commissioner of the Vermont Department of Housing and Community Development, concedes that Vermont is a rural state with small historic downtowns spread across the state and few major population centers. As a result, many towns lack the capacity or resources to make major investments needed to accommodate the construction of much-needed housing.
“The rapid increase in the cost of housing construction has meant that small developers and homebuilders can’t make a project pencil out if the cost of infrastructure falls to them,” he says. “CHIP unlocks the ability to support infrastructure needs through taking on debt, but it is also project-specific. It allows a town and a homebuilder to collaborate on a specific project and, with the support of CHIP, see it come to life.”
Already, some towns have taken advantage of it, including the city of St. Albans, which bought the building of its local newspaper to convert into a mixed-use space “for entertainment, a restaurant and housing,” according to the St. Albans Messenger.
Leo Pond, real estate advisor at Four Seasons Sotheby’s International Realty in Killington, VT, says this program and the fund open the door for smaller towns to build at a scale that hasn’t been financially possible for decades.
“In many communities, the barrier to building housing has not been zoning, and it sure hasn’t been lack of demand, but the upfront cost of extending sewer, water, roads, and sidewalks,” he said.
Now, by allowing municipalities to borrow for infrastructure and repay that investment with the future tax base created by the new housing, the program removes the largest obstacle for development, he said.
“This shifts the burden away from current taxpayers and allows the growth to finance itself, which fundamentally changes what kind of projects can move forward in smaller towns,” Pond added.
Why is it being described as “once-in-a-generation”
Jessica Hartleben, executive director of the Vermont Economic Progress Council, which oversees the program, told VTDigger that “we basically have a once-in-a-generation opportunity here.”
Several experts echoed the sentiment, saying this program deserves this distinct description because it operates at full scale.
As Deputy Commissioner Formalarie explains, Vermont is a small state. While $2 billion may seem like a drop in the bucket for other states, it could make a meaningful difference in Vermont’s trajectory.
“We have an aging population and are facing demographic decline in the decades ahead, which puts pressure on a whole host of things from schools to roads to economic vitality. This program is intended to support smaller towns looking for opportunities to grow their tax base, keep their schools open, and create a brighter future for their communities,” he says.
Under the program, once approved, towns “can retain a portion of new property tax revenue to pay for infrastructure investments for up to 20 years,” with up to 75% of education tax increment for market-rate developments, and a higher rate (85%) for housing with at least 15% affordable units.
In addition to St. Albans, the town of Fair Haven, in Rutland County, also took advantage of the CHIP program by acquiring a 24-acre former race track to build middle-income homes for sale, according to VTDigger.
How this could this affect housing supply, affordability, and local economies—and could similar programs be adopted elsewhere?
John Donikian, vice president at mortgage lending company Best Interest Financial, said that CHIP is an example of addressing one of the primary issues in housing development: the costs of upfront infrastructure investment.
“Because the state allows towns and developers to borrow for infrastructure (roads and sewers) and permits them to pay off the debt from the additional tax revenue generated by new housing, it is creating development opportunities for towns that have been neglected,” he says.
The Vermont Housing Finance Agency’s Vermont Housing Needs Assessment: 2025-2029 report found the state’s shortage of affordable homes available to lower-income households, “became more severe with the COVID-19 pandemic and resulting market shifts.”
The numbers are staggering. For instance, the report notes that half of all renters in the state are cost-burdened, “and one-in-four pay more than 50% of their income on housing costs, putting them at high risk of eviction.”
In addition, the lack of affordable housing supply led to “a tripling of the number of Vermonters experiencing homelessness between 2019 and 2023,” leading to the state having the second-highest rate nationally.
“Without enough available apartments, many of Vermont’s lowest-income residents, as well as the workers needed to house and support them, face extreme challenges,” the report reads.
Formalarie says that CHIP will help Vermont communities focus on one project at a time and right-size the debt they are taking on.
“It stands to increase housing supply, allow more families to take root in our communities, increase school populations, and revitalize historic downtowns and villages that have lacked the resources to make these types of housing projects happen,” he adds.
There are also economic effects: Each project generates local construction revenue while adding to long-term tax base growth.
“Vermont is effectively testing a model for other rural states with a high quality of life and a suffocatingly high average cost of living,” Sotheby’s Pond says.
Experts say other states, such as Massachusetts, New Hampshire, and New York, could implement similar frameworks, as they are also experiencing critical housing shortages and aging infrastructure.
“It will be important to design such programs with strong guardrails, public hearings, and housing as permanent residences during the debt repayment period, along with other housing-related standard approvals that do not overburden small-town administrative capacity,” says Sain Rhodes, real estate expert at Clever Offers.