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The Tentacle


April 27, 2005

Breakeven

Alan Imhoff

It’s that time again! Time for what seems to be the annual battle between the forces of growth and the forces of “managed,” “controlled,” “smart,” etc., etc., growth. Again the argument centers on the question: Does housing “pay for itself?”

I read with a wry smile recently that the Chamber of Commerce wants to have the Board of County Commissioners fund an economic study of the value of new housing in the community. What seems to be a chicken and egg contest of “he said, she said” that goes on every so many years.

There are countless studies out there in cyberspace that have been done on this subject that use the very general statement that “housing does not pay for itself.”

And for the most part I couldn’t agree more. But…………

For me, it is how the argument is framed; how the parameters are determined; and what sort of assumptions is used in any of these studies.

In Frederick County there was the infamous 1997 American Farmland Trust (AFT) study, The Cost of Community Services in Frederick County Maryland. The basic finding was that “for every dollar raised from residential revenues, the county spent $1.14 in direct services.” However, for every dollar for farmland and open space, it was only 53 cents.

In other words, get rid of all the housing and convert everything back to farms and open space and county could make a 47 cent profit on every dollar earned.

Well, needless to say, that was not the real conclusion.

Big bucks have been spent over and over again on these studies. Whoever the sponsoring organization that funds the study will, by its very nature, influence the study’s outcome. So is there any benefit to spending all this money over and over?

Three years after the AFT study, the county’s Office of Economic Development approached me to develop an easily understood “breakeven analysis” for housing versus cost of government. In August of 2000 I presented them with my findings and a method for them to replicate the process on an annual basis.

Based on a methodology developed by the AFT study and expanded to include all county government spending, the “breakeven analysis” showed that “on average” household revenue was short $721.75, if only property taxes and income taxes were used. At the time, every household needed to pay a combined $3,045.79 to “breakeven” with the budget.

What this meant is that housing units above a market value of $145,000 contributed more than was needed in property taxes and an annual household income of $58,100 contributed more in income tax, while those households below the average contributed less.

Again last year, I decided to update that study for my own interest using FY2003 data and some statistics from the 2000 Census that was not available for the earlier August 2000 study.

Guess what? The “breakeven point” had increased just 6.9% to $3,256.25, while the revenue shortfall decreased 60% to just $286.23. Housing units above a market value of $174,600 contributed more, and annual household income above $65,700 contributed more.

So if I were to make a similar observation, as I facetiously did for the AFT conclusion, I would say that we need to add only new housing unit above the $175,000 for households making more than $65,700 a year.

Well, needless to say that is not happening, or is it?

I am sure there are those who will question my conclusions and some who will say this assumption isn’t correct or that the base figure is wrong, and I would welcome them to prove me otherwise, and I’ll be happy to change the model.

But the real bottom line is not this political truism that housing does not pay for itself. Of course, it doesn’t.

But then again we are not just building housing developments. We are supposed to be building communities. Places for jobs; places for quality of life opportunities; places to have the services we need to make our lives richer; a joint effort of business and government, of citizens and visitors; of those who own the land and those who want to preserve it.

Just as we cannot turn everything back to farmland and open space, we cannot just build houses or just build places to work. We need all of it to continue the heritage of this county we call home.

So, if on average every household “owes” an extra $200 or $300 dollars to balance what it uses in services, what is the real problem? Have we gone broke? Have we forced government to do away with any existing park, or closed a road or shuttered the library?

The approximate $23 million we are “short” on average is more than made up by other revenues that are not figured into this model. Is it worth the expenditure, yet again, for another study? Or do we accept the premise and more forward?

We have created another more serious problem and that is the lack of “affordable housing,” however you wish to define it. It is a problem that needs time, energy and resources. If we do not work on this with more interest, maybe, just maybe, we will not have a problem with housing paying their “fair share” as all we build are expensive single family houses.



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