Posted on 11/01/2003 7:39:47 AM PST by SheLion
SAN FRANCISCO (CBS.MW) -- Budget crunches at all levels of government are likely to come home to
roost on real estate owners and homebuyers as municipalities are forced to raise property taxes and
boost fees on home construction, experts argue.
"We are so pressed at state and local levels for money ... that it is going to
be tougher for cities and counties and other local units of government to meet budgets," said Maureen McAvey, a
senior resident fellow at the Urban Land Institute, a Washington land-use education and research organization.
In high-growth areas, the squeeze will not be as pronounced, McAvey said, because new development will
naturally raise the tax base. But in most areas, harder and more potentially divisive decisions will have to be
made, she said.
"Sales taxes and sin taxes have really raised a lot of revenue and helped hold off on increases elsewhere. But in
most place those taxed have reached their upper limit," said Ellen Marshall, a vice president at Patuxent
Consulting Group in Washington.
"That's going to put pressure on property taxes in the next few years," Marshall told a session of the Urban Land
Institute here this week.
In their search for money to replace federal and state cutbacks, local governments may also turn increasingly to
higher impact fees -- charges levied on developers and homebuilders -- and to additional taxes on services like
real estate and mortgage brokerage.
Those two moves could add the cost of buying or selling a home, and would likely drive up the cost of new
housing, a panel of realty experts agreed.
"If these budget deficits continue, I see more and more impact fees coming," said J. Ronald Terwilliger, national
managing partner in Atlanta for development firm Trammel Crow.
Fees expand -- and explode
Already in states like California, fees run as high as $30,000 per developed unit, Terwilliger said, on top of land
costs of about the same amount. "It makes it pretty hard to develop any affordable multifamily housing starting
from that base," he said.
Terwilliger pointed to other places where real estate has been targeted to produce more revenue: New Jersey has
boosted its realty transfer tax, paid when a house changes hands, by 50 percent; property assessments in
Virginia have risen double digits for the last several years, boosting taxes; Raleigh, N.C., has added a $1,000 per
unit school fee; and in southern Florida builders must now pay a "concurrency" fee of $10,000 per multifamily
unit, along with a $16,000 water and sewer fee.
"We're seeing a lot of different, creative uses of these fees. And we're just at the beginning," he said. "Those fees
either increase the cost of what you build or detract from the income you can earn."
Nicholas Pappas, president of homebuilder K. Hovnanian Companies of California, (HOV: news, chart, profile)
said impact fees in his state have tripled in the last decade, from about $10,000 per home to $30,000 or more.
"These are not seen as a tax, so they don't hit the radar screen of tax increases. They are buried in the one-time
cost of housing or the square footage rent of a commercial property, but they are not a matter that become a
political hot button at all," Pappas said.
"The problem is that once they are established, they never seem to go away, even if the impact [they were
designed for] changes."
Real estate bears the brunt
The reliance on real estate to fund local government is nothing new; already, 70 cents of every dollar of local tax
revenue is derived from real estate, said Jeffrey DeBoer, president of The Real Estate Roundtable, a Washington
lobbying group.
But that dependence can have unintended consequences, McAvey pointed out. Because sales taxes have
become so coveted, "every little municipality pushes for its own strip malls and mini-centers to get whatever sales
tax they can," she said.
"You go out and look and all these centers are just two-thirds full two years after they were built because there's
so much retail out there."
Unlike the federal government, states and local authorities generally must present balanced budgets ever year,
returning money in the surplus times but forced to make cuts when times are tough.
For many, property taxes have been the savior in the downturn of the last three years because housing has been
the one area of the economy that has percolated, sending home prices -- and thus property-tax revenues --
higher.
Those in real estate say only overall economic growth that includes new corporate hiring can lessen the
dependence on property fees.
"Hopefully the good news on the gross domestic product, and then on jobs, will help," Terwilliger said.
Steve Kerch is the real estate editor of CBS.MarketWatch.com in Chicago.
Me either, Chad. The anti smokers laughed at us long and hard. Now, maybe the laugh will be "on the other side" for a change. You know the old saying "When they came for the Jews.........."
You think???!! It's mind boggling.
They are also the same people that whined about smokey bars and restaurants, but blame the smokers for businesses suffering after the bans.
I continued to support owners that had fought the ban in Delaware, although not as frequently as I had in the past. Any place that supported the ban lost my business as well as that of many of my friends - and the owners were told why.
Thank God for Free Republic!
Any business that didn't stand up and fight for MY business, I do not go back. Why go out and pay for that personal abuse! Not me.
Oh no they would never do that! They are gentle fluffy kittens who only have our best interests at heart.
Well, maybe the school districts need to look at ways they can cut costs. I'm sure that, just like anywhere else, there is plenty of wasteful spending that could be reined in...
I'll be inclined to say something, but the language will be offensive. :-)
I am not going to bother with all of it, but just use this opening statement as a example of corruption in language such that rape is described as free love. Anyways, my rewrite.
"Over spending at all levels of government will come home to roost on anyone who's feet touch the earth. Municipalities will force new homebuyers, and first time buyers, to fork over more cash for the privilege of not sleeping in their cars.
Me either, Chad.
You should stand up if you smoke and own property or you get the double whammy: Higher property taxes and higher tobacco taxes with the added benefit of having your political opinions marginalized.
The pols and all their cousins and unemployable nieces and nephews bellyed up to the bar when times where good. Now they're simply trying to openly live off the citizens.
And I take the occasional drink. Back door prohibition is next.
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