Study looks at effect of high foreclosure rates on local tax bases

Sep 29, 2009

(PhysOrg.com) -- Foreclosed homes and unsustainable growth can wreck the tax base of local governments. That’s the warning being issued by Auburn University’s Center for Governmental Services following its study of newly released U.S. Census Bureau data on housing unit growth.

Auburn researchers compared housing data from the states of Alabama and Georgia to gauge the effects of the recession and its bubble on property taxes that fund local governments and their services.

“We found a version of the old tortoise and hare tale,” said Don-Terry Veal, director of the Center for Governmental Services. “Georgia, the hare, added new housing units at a much faster rate than did Alabama from 2000 to 2008. But when the real estate bubble burst, Alabama, the tortoise, was in a much better position to weather the storm. Alabama counties won’t experience the property tax problems that some parts of Georgia are going to be facing as tax payments are missed on foreclosed homes.”

From 2000 to 2008, Georgia added 744,000 housing units, a 22.4 percent growth rate, making Georgia the fourth fastest-growing state. By comparison, the state of Alabama added 195,000 housing units, reflecting a 9.9 percent growth rate, ranking it 24th among the states.

Foreclosures have hit Georgia much harder, though. Data from RealtyTrac indicates that Georgia has had 92,611 foreclosures in 2009 so far, compared with just 14,963 in Alabama. That makes Georgia’s foreclose rate on existing housing units 2.3 percent, almost four times Alabama’s rate of 0.6 percent. Assuming the typical Georgia household pays $2,684 in property taxes annually, as estimated by The Tax Foundation, Georgia’s foreclosures represent a potential revenue loss or delay to state and local governments of almost $249 million.

By comparison, Alabama’s lower property tax burden of $1,080 per household and its lower foreclosure rate portend a much smaller potential financial loss or delay of revenue of just $16 million. According to the census data, the Alabama counties with the highest growth rates in housing units from 2000 to 2008 were Baldwin, Lee, Madison, Russell, Shelby, St. Clair and Tuscaloosa. All showed gains in housing of 14 percent or more.

“We are not saying that growth in housing development should be avoided,” said David Hill, associate director of the Center for Governmental Services, “but we are pointing out that counties and cities should be watchful whenever there is a huge growth in housing. The financial bubble can burst, leaving local governments without revenues needed to pay back bonds that financed the infrastructure required for growth, or to pay for expanded services needed to serve newly developed areas.”

The recently released U.S. Census data shows that 23 counties (or 14 percent) of Georgia’s 159 counties were among the 100 fastest-growing housing markets in America from 2000 to 2008. But Auburn University researchers note that four of these rapidly growing Georgia counties (Henry, Newton, Douglas and Gwinnett) were in the top 10 Georgia counties for foreclosures last month, accounting for 2,681, or 22 percent, of Georgia’s August foreclosures.

By comparison, only one (or 1.5 percent) of Alabama’s 67 counties (Baldwin) was among the 100 fastest-growing housing markets in America from 2000 to 2008. Baldwin County had just 227 foreclosures last month, 11.4 percent of the state’s total.

“All things considered,” said Veal, “it appears that Alabama’s more measured growth will be a benefit to our local governments.”

Provided by Auburn University

Explore further: 3 Qs: Economist makes the case for new quasi-experiments as a way of studying environmental issues

add to favorites email to friend print save as pdf

Related Stories

Alabama alligators may become hunted

May 03, 2006

Alabama officials are reportedly considering establishing an alligator hunting season to combat a dramatically rising gator population.

Recommended for you

Which foods may cost you more due to Calif. drought

Apr 17, 2014

With California experiencing one of its worst droughts on record, grocery shoppers across the country can expect to see a short supply of certain fruits and vegetables in stores, and to pay higher prices ...

Performance measures for CEOs vary greatly, study finds

Apr 16, 2014

As companies file their annual proxy statements with the U.S. Securities and Exchange Commission (SEC) this spring, a new study by Rice University and Cornell University shows just how S&P 500 companies have ...

Investment helps keep transport up to speed

Apr 16, 2014

Greater investment in education and training for employees will be required to meet the future needs of the transport and logistics industry, according to recent reports by Monash University researchers.

User comments : 0

More news stories

Clippers and coiners in 16th-century England

In 2017 a new £1 coin will appear in our pockets with a design extremely difficult to forge. In the mid-16th century, Elizabeth I's government came up with a series of measures to deter "divers evil persons" ...

Airbnb rental site raises $450 mn

Online lodging listings website Airbnb inked a $450 million funding deal with investors led by TPG, a source close to the matter said Friday.

Health care site flagged in Heartbleed review

People with accounts on the enrollment website for President Barack Obama's signature health care law are being told to change their passwords following an administration-wide review of the government's vulnerability to the ...