I guess it’s housing morning, so I’m going to talk about one thing that’s not often discussed: the relationship between home values and school and city taxes. If things turn out the way this guys forecasts, that relationship is about to turn toxic:
“There is no iron law that real estate must appreciate,” said Stan Humphries, chief economist for the real estate site Zillow. “All those theories advanced during the boom about why housing is special — that more people are choosing to spend more on housing, that more people are moving to the coasts, that we were running out of usable land — didn’t hold up.”
Instead, Mr. Humphries and other economists say, housing values will only keep up with inflation. A home will return the money an owner puts in each month, but will not multiply the investment.
I live in a district where parents bitch about middle schools that don’t teach Mandarin along with French and Spanish — in other words, there’s constant pressure for the schools to do more. But politicians are also afraid of raising taxes. The solution to this dilemma has been for the town assessor to aggressively raise home valuations. Since taxes are a percentage of home valuation, the total amount collected through taxation grows faster than inflation, while tax rates stay the same. Politicians can claim that they haven’t raised taxes, yet taxes go up. It’s like magic, but it’s a trick that won’t work if home prices are flat or declining.