“Corrected” property tax bills have been mailed, and welcome as the effort to equalize assessments is, values overall continue to increase.
The problem is that, while assessed values are increasing, actual home values are declining. There are both short-term and longer-term reasons for that decline: rising gas prices will inevitably affect the price of homes that do not have access to public transportation. (In Indianapolis, unfortunately, that pretty much describes the whole city.) The slowing economy reduces both the number of buyers, and the prices the remaining buyers are willing to pay.
Then there’s the ballooning mortgage foreclosure rate. It is tempting for those of us not caught up in that crisis personally to be sympathetic, but detached. Sure, we say, it’s a shame that some (other) homeowners find themselves embroiled in the foreclosure process. Of course, some of them weren’t as prudent as they should have been. But that really isn’t our problem.
Except that it is.
Recently, IUPUI’s Center for Urban Policy and the Environment used a statistical modeling process to estimate the effect of foreclosures on housing values in Marion County. The study was limited to foreclosures during 2004. (There is always a lag in the availability of data for this kind of analysis.) The researchers found that the properties that had been foreclosed sold for 26 to 29 percent less than comparable non-foreclosed properties. Even more troubling, in neighborhoods with a number of foreclosures, those “fire sales” get used as comparable transactions for purposes of establishing housing values and sales prices for the other homes in the area. That limits what banks and mortgage companies are willing to lend against those properties. This so-called “foreclosure discount” can thus have a significantly negative impact on the value of other homes in the area.
In 2004, the total decline in housing values across Marion County due to foreclosures was an estimated 9 percent.
Protestors complain that higher property taxes also drive down the market prices of residential real estate. True enough. But lower housing values will in turn drive down tax receipts, giving local government even less money to spend on the public services that—as we sometimes forget—add to the market value of our properties. The quality of our parks, schools, public transportation, police and fire protection all factor into the price a prospective buyer is willing to pay for a home.
There is no easy “fix” apparent. From all accounts, we have yet to see the worst of the housing crisis. The federal government has led by bad example, running up its own unaffordable mortgage—our gargantuan national debt. That bill is coming due, and further straining our ability to tackle our economic problems. Gas prices may level off, but they are unlikely to decline, and energy costs drive up the cost of everything else.
We have been living on our national credit card, unwilling to control the wheeler-dealers or invest in our communities. Now the bill is coming due.
It’s going to get ugly.