Loudoun County had the Washington region’s sharpest drop in home prices last year.This is where the divergence between prices and expectations becomes important, as it will greatly inform the debate about taxes and budgets. If home prices are down, on average, by 8% (as the article states), then all-else being equal, assessments should also be down on average by 8%. However, assessments have actually fallen faster than home prices, on average. Assessments are down by 10%, where prices are down by 8%.
The median price of single-family houses and townhouses sold in the county last year was $492,000, down 8 percent from $535,000 in 2006, according to a Washington Post analysis of government sales records. - LoudounExtra
Before going on, it should be noted that these are averages, there will of course be very uncommon, specific cases where prices fall but assessments do not. However, the windfall from the Federal Government is likely to offset the additional costs in these rare cases.
When housing prices fall, people feel less wealthy, so they want to spend less. They feel they cannot spend less (or, perhaps more accurately, should not be asked to spend less) on things like their mortgage, gas, car payments, etc. After all, they don't get to vote on those prices. Thus, they complain not about the costs that are hurting them the most (ARM mortgages that are resetting, gas prices, food prices) but those that they feel they have the right to complain about. Furthermore, those in government know this, and as a result, assessments fall a bit more than home prices, perhaps in an unconscious attempt to mitigate some of the complaints to come.
Of course, this puts our elected officials in a tough position. With assessments lower than home prices, and the required public goods (education, roads, safety, etc.) higher than ever (thanks to the policies of previous local administrations) taxes have to be higher to simply maintain the level of services the vast majority want. Ultimately, all of our problems, complaints and irrational expectations (see below) get dumped on nine people in the entire county.
Nine elected Supervisors. Nine scapegoats for problems the majority of them have done nothing to cause and all of them have spent their terms so far trying to solve.
The real culprits of our problems are not taxes and local budgets. The real problems are the trifold issues of bad mortgages, which push people out of homes they can no longer afford and depress prices throughout the area; a weak dollar, which is a big reason why food and energy costs have spiked so high; and unreasonable expectations, by which many people expected incomes and home prices to go up forever even as other prices stayed stable, with no impact from a trillion dollar "emergency expense" at the Federal level and balooning consumer debt.
The thinking goes like this: My income and home value is always heading up, therefore I can spend more of what I have today, because I can save and pay myself back tomorrow. I know this to be true because the media, government, and mortgage brokers all tell me it's true and they wouldn't lend me money if I couldn't afford it. Now, when things go south, I have been told for years that the problem is always government, never the businesses who made bad decisions. Furthermore, I am a free rider, I would prefer to not pay for public goods when I can instead spend that money on consumer goods. Unlike all other goods and services I consume in my life, I actually get to help set the short- and medium-term prices for public goods by voting for the officials who can control their short- and medium-term prices (i.e., taxes). Thus, as a self-interested consumer, I want to vote for people who make me pay less for public goods so I have more money for mortgages, gas and other things.
But what happens when this thinking reaches its logical conclusion? The prices for public goods cannot be reduced forever, eventually you have to increase their price, or decrease the amount of that good (education, safety, roads, environmental quality, emergency services, etc.) available to the public. More often than not, this moment coincides with other difficulties, because the community has been fed a ceaseless diet of baseless promises from vendors and elected officials who should (and probably do) know better.
A reduction in the availability of many public goods (i.e., the alternative to marginally higher taxes) has a vicious effect on the long-term quality of life of a community. A marginal decrease in a public good has an effect many times greater than a marginal decrease in a private good because of the extent of the people effected and the long-term impact of the decrease. If you do not build more fire stations and hire more police as a population grows, everyones' safety decreases, whereas if one household drives less and buys less gas, it is only that household that is impacted.
Of course we taxpayers have the right to complain to our public officials about taxes, but we also have the right to complain about all the other costs that impact our bottom line. In a world where ExxonMobil makes more than $1,287 of profit for every second of 2007, we have a right to complain about gas prices. In a world where the Federal Government bails out an investment bank before people investing in their own homes, we have a right to complain about our mortgages. It is a testament to how how-of-whack the public perception of relative costs have become that the part of our budget suffering the mildest increase - local taxes - has received the wildest overreaction, even as those behind the root causes of that increase are rewarded for their hubris and greed.
For example, gas prices have gone up over 30% in a year. ExxonMobil recorded the highest profit in history in 2007. Some of that profit couldn't have been returned to the consumer as lower prices? Where are the protests and angry letters about ExxonMobil taking too much of "my money?" This is for a product whose impact on society is known to be negative, from traffic to pollution, fossil fuels are among the root causes of many of our local problems, not to mention higher retail prices because of higher transportation costs.
Contrast that with local public goods like education and safety, where a little bit of prevention goes a long way. A rational allocation of resources would transfer investment away from negative returns (cars and gas) and towards positive returns (education and public well-being). And yet, still our Supervisors get angry phone calls, while the head of Bear Stearns, the biggest financier of the people selling sketchy mortgages, retires with hundreds of millions of "thanks for completely sucking at your job" money.
Sometimes, we need to get a little perspective on our problems, in order to properly see where they originate from, and how to deal with them. Local taxes are not the problem, they are the last symptom of a much wider, much broader set of issues, and it is to those issues we must turn our focus and our votes, because that is how we will solve for our local budget in the coming years. When our home prices and income expectations actually match the reality of the world around us, we will find a much more stable political consensus. Until then, we owe it to our Supervisors to trust them, their whole career is predicated on trying to solve this mess. No one has better incentive to do the job right. We can pass judgment on that job in the months and years go come.
Let's all take a moment to breathe, and let our elected officials do their job. After all, it's what we elected them to do.
1 comment:
Damn good article...
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