The next facet of the issue is funding. In the park plan the city has committed $1.8 million over the next 6 years to be funded by the current residents. (this is in addition to the part funded by development) Also maintenance and upkeep of any future parks will be paid by the current citizens as well as the new residents.
When the city raises impact fees of any kind they are adding to the cost of construction of new homes in Duvall. This year the city raised this amount approximately $5000. Builders include this amount in the cost of the home and when they sell the home the new resident indirectly pays the impact fee for construction.
So the question is how does that affect us? When a new house goes up in the neighborhood and it is sold the price includes these additional fees. In order for the builder to make the same profit they need to raise the price of the home to cover these fees. When the County Assessor comes to your neighborhood to assess your home they are going to look at market comparisons and they will see that these houses are selling for more money. They then assess your property at a higher rate. When your property taxes go up then you have less discretionary money and thus you have less to spend on dining at Ixtapa, shopping at the book store, artwork at The Laurel Tree, etc.
This is how these fees effect local businesses. With such a small customer base it is vital that the city do all it can to not harm businesses. I contend that by raising these fees the city is by default harming these businesses.
While these impact fees were billed as a way to make developers pay their fare share it was in actuality a tax increase on every homeowner in the city. I trust that the council did what they thought was best but I doubt that all these areas were explored fully.
The blog-writer's contention that "by raising these fees the city is by default harming these businesses" is based on the simplistic presumption that builders will automatically act to raise the price of their houses by the amount of the fee increase in order to preserve the same profit margin. In economic terms this is the "cost-plus" model, which applies best in the real world to government-regulated industries: utilities, the airlines (prior to the 1980s), etc. Also monopolies and near-monopolies, such as Microsoft, have similar pricing power. Home building is a highly fragmented industry whose pricing is subject to local market conditions and the current cost of mortgages.
ReplyDeleteJust a couple of years ago, when real estate was a sellers' market and credit was easy, builders were raising prices on new houses in Duvall by tens of thousands of dollars every few months and earning historically high profit margins. Today, credit is tight, potential home buyers are fewer and cautious, and builders must accept reduced profit margins. IN ANY HOUSING MARKET DEVELOPERS CHARGE WHATEVER THE MARKET WILL BEAR REGARDLESS OF "FEES".
It is, in fact, the equilibrium between the developers' desire to MAXIMIZE PROFITS and the buyers' WILLINGNESS TO PAY that determines new home prices--and their effect on neighbors' tax assessments--that overwhelms the influence of all other factors including impact fees.
gonemoderate
I use the "simplistic presumption" that fees are passed on to the home buyers because that is exactly what the city was told at the City council meeting on October 22 this year. Below is a quote from the city council meeting minutes from that day. “Bruce Knowlton, (address omitted), developer of the Cottonwood Project, among other parcels in the City, asked the Mayor and Council to not increase the Traffic Impact Fee until these economic conditions improve. This is not the time to increase another impact fee. This is a time when home prices are going down, and these costs get passed on to the home-buyer, making it even more difficult for them to afford homes in an already difficult economy.”
ReplyDeleteI also do not share your contempt with the builders gaining record profits. If the market allows a business owner to gain profits then we should all be happy with their success. This should not be seen as an opportunity for the government to increase fees and make sure they “get our share of the profit” as it was recently stated in a city council meeting. You are correct that the market will decide what the price will be. But the market price rises when the cost of production increases as well as when supply and demand fluctuates.
It seems that you are a little upset that the building industry made such record profits a couple of years ago. To put this in perspective let’s examine a few other company’s profit margin in the same time period.
Microsoft – 29%
EBay – 20%
Johnson and Johnson – 20%
Google – 19%
Coca Cola – 19%
Apple – 15%
Disney – 11%
Exxon Mobile – 9%
Chevron – 9%
Perhaps a little perspective would be helpful. By increasing the fees Microsoft has to pay also plays a part in the software they produce, the fees Johnson and Johnson pays plays a part in the cost of children’s shampoo, and some of the $150 you pay for an IPod also goes to the fees paid to the government.
So let’s lower the fees that the government charges and by extension lower the cost of the product and thus let you keep more money in your pocket, unless you think the city spending $27,000,000 is better than a quiet night out with your wife at Ixtapa.
Your perception that I have "contempt" for builders' record profits is incorrect. The point is that the steep increases in housing prices in the recent past had substantial direct and measurable effect on neighbors' tax assessments, while the case for a direct and measurable effect cause by Duvall's impact fee increases can not be validated. By your own lack of logic, you OPPOSE possible higher tax assessments caused by impact fees, while APPLAUDING much higher tax assessments caused by a hot market producing soaring housing prices and consequent increased builders' profit margins. Why the distinction, in your mind, when the latter results in demonstrably less discretionary income available to be spent at Ixtapa, the book store, or Laurel Tree?
ReplyDeleteFurther, you completely disregard the cost to Duvall taxpayers of impact fees held at levels substantially below the cost to the city of providing infrastructure for new developments. Spending to cover the difference must be drawn from the general fund, compelling current residents to pay disproportionately for new roads, parks, etc. and forcing them to accept a lesser level of city services that would otherwise more directly benefit them. That is a steep trade-off, in my view, for a "quiet night out at Ixtapa" but a very good taxpayer-funded deal for developers.
gonemoderate
The distinction is not a lack of logic but it is based in principle. I do oppose higher tax assessments based on impact fees because the impact fees were raised to pay for a park plan that I believe was hugely excessive. What I am not in favor of is the government interfering or causing false price spikes in the market. I do not mind a higher tax assessment based on market value increases because I am in favor of allowing the market to set the price.
ReplyDeleteAnd further I do not disregard the costs to the tax payers. I contend that I am working to keep taxes down. When the city decided to put together this over ambitious park plan they decided to raise taxes on new home buyers, on the current citizens, and all future citizens. If the city had exercised restraint then we would have lower impact fees, more development and more money in our pockets.
The other key point that I think you fail to recognize is that the developers are not the only business that benefit from less governmental interference. All the businesses in town benefit from lower taxes and all of us benefit from market value increases.
Discretionary income will be affected by many reasons. Government should have the smallest effect on our discretionary income.
Your principle is out of touch with the interests of Duvall's taxpayers and, fortunately, by the wisdom of Duvall's voters, your Disney-esque view of developers is also out of touch with all members of Council save one.
ReplyDeletegonemoderate
I am interested to know why you believe that the principle of allowing the market to decide pricing is out of touch with interests of Duvall's taxpayers. A vast majority of Duvall residents work for Microsoft, either directly or indirectly, and they receive a generous compensation package due in part because there is great demand for their product. These citizens are served quite well by the market.
ReplyDeleteAlso you should be clear that I am not on the developer’s side of anything. I believe the American system works best when the market is allowed to work rather than the government attempting to manipulate the market. I am seeking to get information out to people and to remind them of the principles this country was founded on.
Perhaps we could better understand each other if you were to explain your position on the developers and why you disagree with their actions. I would also like to know why you believe this one council member has a "Disney-esque" view of developers.
Gone moderate,
ReplyDeleteI am still interested in continuing our conversation and would love to hear more from you.
Thanks