Falling home values mean budget crunches for cities

“We’ll see, over the next few years, the real impact of the recession and housing crisis on local governments,” said Andrew Reschovsky, a professor of public affairs and applied economics at the University of Wisconsin at Madison who has studied the effects of the recession on city finances. “I think the case can be made that we have not yet seen the worst of the impact on local governments. . . . That seems to be accelerating.”

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The worst may be yet to come.

“That storm has not yet hit,” Frank Alexander, a professor and housing law expert at Emory University, said of the looming decline in property tax revenues, which he and others agree will last years. “It’s beginning in 2011, but it’s really going to hit in 2012 and 2013.”
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While there are some encouraging indications of the economy awakening from a four-year-long slumber, real estate deflation continues. The resulting lower ad valorem property tax revenues are strapping local government coffers. Plus the massive reset in residential real estate values means new homes will be be assessed at lower values, translating into less tax revenue.

The perfessor will predict this means any new residential construction will necessarily involve mandatory membership homeowner associations to help take the strain off local government finances. There's a large degree of irony at work here. The inflation of the housing bubble drove the growth of Privatopia since local governments weren't about to willingly absorb the infrastructure and other costs to service a multitude of new residential "communities." Now that the bubble as popped in the very places where Privatopia boomed from 1999 to 2006 such as Underwater (nee "Fabulous") Las Vegas, they're likely to be just as inclined -- if not more so -- to require all new residential development be of the common interest variety.