Housing Is Substance For City

The Fiscal Sustainability Committee presented their report to the Alameda City Council last night and at the core of their findings were two things: a weak housing market that produces revenue and an increase in employee costs (salaries, benefits and retirement) as the biggest expenditure.

The City receives funds from both property and the transfer tax. The bulk of the General Fund comes from property tax, but with homes not selling the revenue stream remains stagnate, because properties do not see big reassessment until they sell. Anyone following this blog knows sales have been slow in Alameda. (From the report)

Property taxes represent Alameda’s single largest source of revenue. While these economically sensitive revenues weaken, Alameda has not experienced the unprecedented real property tax declines experienced by many other communities. The primary reason is low sales of existing homes, which, while negatively impacting the Property Transfer Tax revenues, results in less reassessment of properties to lower values which would lower property tax collections.

To date there have been just a 129 sales on the Island. That is just under 26 sales per month.

The severe housing market downturn, and foreclosure meltdown was at the top of the list of issues that have impacted the city current state. The Committee also credited a tightening credit markets, falling consumer confidence and spending, rising unemployment and a decline in the stock market.

I know that the report is to give an overview but they dedicated less than a page to the “Housing Market Downturn” even though it was a top of the list. (This is the primary paragraph)

The housing market slowdown that started in 2005 has worsened and could continue well into 2010. In the Bay Area, the median price paid for a home in March 2009 was $295,000, down 46% from a year earlier, according to MDA DataQuick. In its most recent annual report, the Alameda County Assessor’s office noted that the countywide annual rate of growth in residential and commercial value declined in the past three years.

Yet Alameda has a low incidence of foreclosure and has actually experienced some growth in real property value, although less than projected. As the inventory of for-sale homes increases, downward pressure on both housing prices and construction occurs. This in turns leads to real and perceived drops in equity values that typically have a negative effect on consumer spending and sales tax revenues.

The Alameda median home price in January 2008 was $621,000 and in January of this year it was $457,000; a decline of 26-percent. This past month the median price has inched up to $544,000.

The property transfer tax remains static this year because of low sales volume. Even with the increase in the property transfer tax rate from $5.40 per $1000 to $12.00 per $1000; property transfer tax revenue is forecast to decline by 22% in the 2009 fiscal year.

The big risk is to the local economy and the housing sector is rising unemployment. Nationwide unemployment reached a multiyear high of 8.9% and California reached 11% in April 2009. The report accounts for part of the unemployment in the state are due to the housing crisis and the subsequent effect on supporting industries.

The thing to glean from the report is housing is the main economic driver and until homes begin to sell again the revenue for the City will not grow.