by James A. Bacon
Well, well, well. How about that. Home prices are still booming in the Richmond region, according to the latest Richmond Association of Realtors (RAR) data. In Henrico County, where citizens will vote on a 4% meals tax in November, the median sales price increased 11% in the third quarter of 2013.
Faithful readers may recall that I argued back in August that a surge in housing prices — median Henrico sales were up 11.8% as of the second quarter — indicated there was no need to enact a meals tax. Rising assessments would juice residential property tax revenues by roughly $18 million more than budgeted, or the same amount county officials expected to raise from a meals tax.
No, no, no, replied Laura Lafayette, CEO of the RAR in a Richmond Times-Dispatch column. Updated numbers, she said, showed that the rise in median sales prices had slowed to only 7.7%. She was the expert. I deferred to her authority on the subject and dropped that line of argumentation.
So, it comes as quite a surprise to read about the latest market data in the Times-Dispatch. It turns out that sales price increases have barely slowed at all in the latest quarter — dipping from a blistering 11.8% pace to merely sizzling 11% rate. Gee, Henrico might see only $15 million or $16 million more in residential revenue than anticipated instead of the full $18 million I suggested was possible. Waah.
I was willing to concede in August that Lafayette had a point. Is she willing to concede today that she erred? I’m not holding my breath.
That’s not the end of the story, of course. These debates descend into ever-greater levels of complexity. Henrico Budget Director Brandon Hinton argues that one cannot extrapolate from increases in housing sales to increases in assessed value. The houses that are selling on the market are not necessarily representative of all Henrico houses. Housing demand and sales transactions may be surging in more desirable neighborhoods while other neighborhoods are still afflicted by foreclosures. In a recent public hearing, he stuck to the county budget forecast of only a 2% increase in real estate tax revenues next year.
He’s the professional. He may have a point. Assessments may not increase 11% next year. But it’s hard to imagine that they will increase only 2%. The Realtors report the median price, not the average price. The average price can be skewed by a few sales in the million-dollar price range. The median price cannot — by definition, that is the price at which half of all sales are higher and half are lower. In Henrico’s case, the median price increased to $217,000. That means lower- and mid-priced houses are increasing in value as well.
There are two other significant points to take into consideration.
First, when I calculated back in August that increasing sales prices would increase residential real estate taxes by $18 million, I did not include commercial real estate tax revenues. But if commercial valuations are rising at the same rate as residential, that could represent an extra $7 million in revenue for the county.
Second, no one is taking into account how new construction and building renovation can push up the assessed value of property. Through September this year, Henrico County issued $106 million in building permits. If that construction activity gets reflected in higher assessed value, it would add nearly $1 million in revenue.
Tote up $18 million in higher residential property taxes reflecting higher valuations, another $7 million in commercial property taxes due to higher valuations, and another $1 million from new construction and you get $26 million more than budgeted.
Now, I’ll concede that’s a best-case scenario. It is possible that sales prices will collapse in the final quarter of the year. There may be neighborhoods where sales are not occurring and stagnant prices are not reflected in the RAR data. Due to inherent delays in the reappraisal process, there may be a lag between this year’s higher prices and next year’s tax assessments. But I’ll offer a friendly wager to Laura Lafayette, Brandon Hinton, County Manager John Vithoulkas, Supervisor Patricia O’Bannon or anyone else a dinner at a Henrico restaurant of their choice (meals tax included) that real estate property tax revenues will exceed the official county forecast by many millions of dollars.
I doubt I’ll get any takers. But you can count on one thing. If I’m right, I won’t let them forget it.