On of the byproducts of the housing boom for many municipalities was the abundance of tax revenues created by rising property tax and transfer and recording tax revenues, along with increased sales taxes for housing related costs such as home improvement items. New York City government is actually running a surplus these days, primarily related to the housing boom. But this seems to be the exception, not the rule.
What happens when the tax money slows to a trickle? Services offered by local governments suffer. In Andrew Leonard’s How the World Works column Attack of the toxic housing bust [Salon] he discusses how the housing markets in California and Florida have been responsible for a significant loss of tax revenue for government coffers in January.
Florida’s housing woes are manifold: insurance rates are sky-high, prompting extensive government intervention. Foreclosures are spiking, leading one opinion columnist to urge Gov. Crist to declare a one-year-moratorium on new foreclosures. The special case theory is attractive: Few states have encouraged developers to act with as much freedom as Florida, and few have seen more frenzied bursts of speculative flipping. Now the state is paying the price.
Just this week, the Sacramento Bee reported that California also witnessed significant revenue shortfalls for January, which the state controller blamed on the real estate and construction industries.
Caroline Baum, one of my favorite Bloomberg columnists, states in her recent article Banks That Took Greenspan’s Advice Pay the Price [Bloomberg]:
“Housing and housing-related employment made up a little over 40 percent of all payroll employment from November 2001 to April 2005,” she says. “Employment in residential construction declined in nine out of the 10 months ended January 2007,” with 104,000 jobs in residential specialty trade contracting lost since the February 2006 peak, according to the Bureau of Labor Statistics.
With the auto industry on the fritz, accounting for 1 of 6 jobs in the US and now housing market problems, I am skeptical that we are going to see a real long term threat from inflation and higher mortgage rates for the foreseable future.
Perhaps that will temper some of the ill effects caused by the housing slowdown in certain markets.
Tags: Alan Greenspan