There’s bad news for local governments in Virginia that rely upon property tax revenues to support schools, public safety and other priorities. Property values for single-family homes, which account for a large majority of most jurisdictions’ total assessed value, will not increase much over the next few years, according to a new study by the Demand Institute.
Nationally, the picture is dismal enough. “Double-digit increases in U.S. home prices over the past two years are not indicative of future trends,” states the report. “They were driven largely by investors buying up swaths of distressed homes to meet growing rental demand. Over the next five years, prices will grow over a much slower rate. We forecast existing single-family media home prices to grow at an average annual rate of 2.1 percent between 2015 and 2018 as supply and demand move into sustained equilibrium.”
But there will be significant variations among the 50 states. And Virginia drew the short end of the stick. Of the 50 states and District of Columbia, the Demand Institute ranks Virginia third from the bottom (D.C. is at the very bottom) for expected rebound in the median price for a single-family house between 2012 (the market trough) and 2018 — only 14%.
(There is a discrepancy in the numbers that I am at a loss to explain. Nationally, the median price of single family houses is forecast to increase at an annual rate of 2.1% between 2015 and 2018, or 6.3%. Yet the report’s breakdown of the states shows every state but D.C. showing increases between 7% and 33% over the same period. If anyone can explain the difference, please let me know.)
There is even greater variation in the forecasts for Metropolitan Statistical Areas (MSAs). The Washington metro area ranks dead last, with anticipated price gains of only 7% between 2012 and 2018 — an average gain of little more than 1% a year.
Richmond is a laggard with only a 17% gain over the same period, while Hampton Roads shows a stronger housing market than most, with a forecast gain of 25%.
Bacon’s bottom line. Rising real estate assessments won’t bail out Virginia local governments like they did in the early 2000s. Meanwhile, localities are grappling with the cost of financing public pensions, meeting state and federal storm-water mandates and replacing aging infrastructure. Either tax rates will rise, government services will be cut… or government officials will have to do things differently. Of the three, the latter course of action is the most desirable, though probably the least likely.
What can we do? Move more aggressively to apply smart-city technologies to manage public facilities and infrastructure more efficiently. Encourage more compact development to maximize utilization of existing infrastructure without incurring the obligation to build and maintain more. Begin integrating online and computerized learning into K-12 curricula as appropriate.