Date: Thu, 21 Jan 2010 12:23:01 -0500
From: Tom Glendinning
Subject: Re: “Whiners and winners: Recession brings Chatham golden choices”
Boom & Bust Cycle in Residential/Commercial Development 1/21/2010
Wally Kaufman’s post on the Chatlist, 1/18/2010, rebutted claims in the Independent about developments in Chatham County and the effects of the building cycle. I praise Wally for being involved after years of residency elsewhere. His dedication is equaled to that of Wade Barber Sr., who worked on Chatham business up to the time he died.
I agree with the comments on free market. This cycle has been repeated for centuries. We have seen its effect at least four times last century. The most recent major event was in the late 1980’s, preceding a stock market meltdown. The housing bubble was a topic among fiscal experts and market pundits then.
During a good economic climate, developers build at a high rate. Banks support that activity with loans. When the market matures, home buying and commercial space rental drops. The market heads south. Prices drop. Eventually when the economy recovers, the housing/rental space market resumes.
Our legislative response was to pass a law forcing banks to make high risk loans under Clinton in 1996. The tacit agreement ensured that the failure would be underwritten with federal funds.
The path was paved by Democrats, Carter and Kennedy/Johnson and the Democratic Congress(2004.) Regardless of the other fine work done by these leaders, the housing bubble was enabled by specific legislation. The natural cycle would lead to a dramatic result effecting the financial sector, which we have just experienced.
Now, to address the concept of “fallow acres.” The property tax is levied on all parcels and buildings, finished or not. A developed lot is assessed at a much higher value than “residual land” in undeveloped neighborhoods. For instance, residual land in NE Chatham may be valued at $ 15-20,000/acre, whereas a developed lot in the subdivisions of that area may be valued at $ 60-80,000/ lot, of which there are several per acre. In other parts of the county, this is repeated on a smaller scale. The tax revenue does not suffer during a downturn.
One underutilized strategy is land conservation or farmland preservation. A normal residence costs $ 1.25 in services for each dollar of revenue. Farmland and industry costs around $ .55 for each dollar of revenue. (Assessment cited from Maryland land conservation statistics ca. 2000.) The choice is clear. Bring in industry and preserve farmland. Further, removing development rights to farmland parcels will preserve rural beauty. And transferring development rights to ongoing developments will make them more viable and increase the tax base. The tools for this plan can be managed in the private and non-profit sectors without county involvement or funds.
Further, the gross capital base of Chatham has increased dramatically in ten years. In 2000, the base was roughly 5 billion. In 2010, it is 8.5 billion, an increase of seventy percent (70%.) This increase in base grew revenue and is the basis of county spending without raising the tax rate. So the county government is not suffering. In fact, it has just increased salaries, salaried positions, and spending by the largest amount in its history.
This hiatus in development due to economic pressures grants the anti-development crowd what it wants without requiring more strict planning rules. In other words, the housing moratorium is not needed at the moment because the market is depressed.
The taxpayers of Chatham County would not suffer increased pro rata taxes if there was more industry. Thirty years ago, the industries of Moncure payed thirty percent (30%) of the total tax revenue. Today, that industry pays less than ten percent. The burden falls on residents to make up the difference. And we have no jobs within the county borders to support our taxpayers.
As Wally said, “Chatham has unusual brain power, a surplus of academic degrees, and wealthy residents,” citing that George Lucier has one of the highest IQ’s in the county. Mr. Kaufman has the other highest IQ.