Gas Prices Contributing to Bursting the Housing Bubble?

Are increasing gas prices to blame for the bubble bursting in the housing market? According to a recent report conducted by the Ceos for Cities organization there is some relationship between gas prices and the housing market. Or more specifically, they claim that the price of homes in the suburbs is being forced to come down because people can’t afford the increase gas costs…so they either need cheaper suburban homes or live closer to work.

The collapse of the housing bubble, punctured by the gas price spike, marks a watershed point for the nation’s suburbs. When gas was cheap, buying a house in a distant suburb where housing prices were cheaper seemed like an affordable housing choice for many families. But as the more severe decline in housing prices on the urban fringe over the past year illustrates, $3 a gallon gas has made low density development a false economy across the nation.

I don’t know if I buy into the complete conclusions of this report, but I think it does raise some important housing accessibility and affordability questions for policy makers. Is demand going to increase for more urban homes? But what about the argument that more affordable homes are in the suburbs? You can read the full study here: Driven to the Brink

Oh and another article in the Deseret News today about gas prices in Utah have hit another all-time high…$3.47 a gallon. Read the article here.

 

The Baby Boomers Are Coming!

There is no question that the baby boomers are beginning to reach retirement age. Over 300 Americans turn 60 each hour of the day. So what does this mean? Should we fear the increasing over 65 population and the potential costs this will create for government? John B. Shoven, an economics professor at Stanford recently explored the potential affect this aging population could have. Shoven (in a recent article published by Foreign Policy) writes:

There is a looming catastrophe stalking the developed world. It promises to devastate the global economy, overwhelm hospitals, and decimate armed forces. What is the calamity that promises such misfortune? Not a killer virus, deadly terrorist attack, or natural disaster. It’s the aging of the world’s baby boomers, the coming tidal wave of senior citizens who will live longer, consume more, and produce less, seriously challenging societies’ ability to care for their graying ranks.

This is the sentiment that is presented by a number of policymakers. However, Shoven argues that the way we measure age is flawed. Specifically, a 65 year old today is not the same as a 65 year old a few decades ago. In fact, according to Shoven’s numbers, a 65 year old man in 1940 could expect to live 11 more years. Today a 65 year old man has a life expectancy of another 17 years. Or a 65 year old today is the equivalent (according to mortality rates) as a 59 year old in 1970.

Does this mean we should up the retirement age? I’m not necessarily advocating that…but this does add an additional factor to our discussion of dependency ratios and aging demographics. While it is true the baby boomers are coming, it sounds like 65 may soon be the new 55.

 

Boomburbs Forum

Did you know that Mesa, Arizona is now larger than Miami or St. Louis? Or another suburb of Phoenix, Peoria, is now larger than Peoria IL? The population growth in America throughout the last few decades has largely occurred in the suburbs, or the “Boomburbs” according to Dr. Robert Lang.  Lang was in Salt Lake City yesterday to present his research regarding the trend of boomburbs across the nation and the population growth of the west. Recently Lang’s book Boomburbs: The Rise of America’s Accidential Citieswas published by Brookings (I blogged about the book a year ago: here).  Lang’s afternoon lecture at the U of U and evening forum at the SLC Library raised a number of important questions related to our growth here in Utah. A few issues were especially relevant:

• How does a city transition from it’s “cowboy” or country heritage to an urbanized environment? Meaning if we are going to add 1 million more residents to the Wasatch Front (by 2060 Salt Lake County is projected to be over 2 million in population) how will this increased density reshape our notion of community in the suburbs? We are beginning to see this already with sleepy suburban communities now growing to over 100,000 in population.
• How can cities incentivize significant economic development? How important is transportation infrastructure? Or a walkable space that residents enjoy? These are few issues addressed by Lang.

In addition to the presentation from Dr. Lang the evening forum also included the perspective of three panelists: Soren Simonson (Salt Lake City councilman), Rick Horst (South Jordan city manager) and Mike Coulam (Sandy City community development director). These three officials all contributed to an interesting discussion. Thanks again to Dr. Lang and our panelists (and KCPW for broadcasting the forum).

You can listen to the KCPW podcast here: Dr. Robert Lang Forum

 

Local Economic Development

The debate over sales tax driving economic decisions (or the “zoning for dollars”) has been an important discussion for local officials for years.  Despite the years of debate it isn’t exactly clear how much sales tax revenue dictates local land use decisions and more importantly to what extent the economic development incentives of the state are different than the economic development incentives of cities and towns. We know that cities have a large dependency on sales tax. However, the state frequently pursues higher paying jobs than retail (which does not provide immediate financial incentives to cities). However, the puzzle of economic development is complicated…sales tax is also important to the state (generating nearly $2 billion and over 34% of the GF budget) and high paying jobs are key to the quality of life of cities and towns.  In my opinion the economic development decisions are not singularly dictated by tax revenue incentives. Not to mention other factors such as demographics, infrustructure, and quality of life factors that may play a more important role than tax structure on business decisions.

Anyhow Utah Foundation explores these questions in an interesting recent report: local-economic-development-utah-foundation

The sales tax may actually be a more balanced economic incentive than it seems at first glance. Many retailers prefer locating in a city with good jobs and well-to-do residents, creating an incentive for cities to pursue balanced development to foster strong retail sales.

 

Truth-in-Taxation

                         Property taxes are frequrently cited as the most hated tax, partially because they are also the least understood tax.  One reason property tax is more complicated is because of the various tax entitites and their differing tax rates (as illustrated with this picture).  However, property taxes can be explained in a relatively direct and simple manner….which we have sought out to do.  

Property Tax Myth #1: Cities receive more money when home values increase    We have found through our trainings of newly elected officials that there are a number of misperceptions regarding property tax revenue during times of increasing home values.  Even among many elected officials there is this perception that cities recieve a windfall of revenue every time the homes in their community appreciate in value.  However, truth-in-taxation prevents exactly this from taking place. Instead truth-in-taxation creates a brake on revenue windfalls associated with increasing property values.

Roger Tew and I recently presented a basic outline of how truth-in-taxation works to our city officials across the Wasatch Front. You can access the presentation here: ulct-property-tax-forum3

 

Job losses worst in 5 years…

The Labor Department today has announced a net loss of 63,000 jobs in February. The job losses are not just limited to the construction industury either. Retailers cut 34,000 jobs and manufacturing employment also took a big hit. This is the largest employment loss in five years.

“Based on today’s Employment Report, if we are not in a recession, it is a darned good imitation of one,” said Kevin Giddis, managing director of fixed income at Morgan Keegan.

“I haven’t seen a job report this recessionary since the last recession,” said Jared Bernstein, an economist at the Economic Policy Institute in Washington. “This is a picture of a labor market becoming clearly infected by the contagion from the rest of the economy.”

Utah’s employment is still relatively strong, but there are some areas weakening. According to the recent Economic Report to the Governor Utah has 105,000 jobs statewide in construction. Construction jobs increased by 11% from 2006 (10,000 new jobs), however the previous year construction jobs increased by nearly 17%. Utah job growth in construction and mining is definitely slowing, but many other industries continue to remain strong.

This map represents a nice national illustration to where job growth, by county, is above or below the national average.

 

Is bond ratings for states and cities fair?

A recent article in the NY Times notes an interesting comparison between corporate bonds and municipal bonds.

States and cities rarely dishonor their debts. The bonds they sell to investors are generally tax-free and much safer than those issued by corporations. But some officials complain that ratings firms assign municipal borrowers low credit scores compared with corporations. Taxpayers ultimately pay the price, the officials say, in the form of higher fees and interest costs on public debt.

The major complaint is coming from California (who currently rated A, but claims they should be rated triple A). However, the move to reform bond ratings has already attracted the support of half a dozen state, including Washington and Oregon. Apparently the group is lobbying Moody’s for some changes to the ratings scale. I doubt anything will change, but it is an interesting issue…and might become more important if the economy worsens.

 

Recession Looms…or not

Federal Reserve Chairman Ben Bernanke and Treasury Secretary Hank Paulson both stated today that the federal cut in rates and the economic stimulus plan could keep the economy out of a recession. Esentially Bernanke and Paulson predict that the economy could be “sluggish” for the first couple months of the year, but then pick up speed later in the year. You can read the CNNMoney article here.

Of course what is the cost of this economic package to stimulate the economy? In Utah it looks like the stimulus package will take $65 million from the state education fund. Some of this loss should be offset by increased sales tax revenue (to the tune of $30 million…seems a bit optimistic to me, but maybe not). A recent SL Trib article addresses this issue here.

Bernanke’s testimony to the Committe on Banking, Housing, and Urban Affairs

 

Great Plains Drain

It seems like population growth has no end in sight for the state of Utah. However, obviously not every region of the Nation is experiencing the same growth. An interesting article in the recent Economist addresses this issue of population decreasing in the Midwest. Looking at this map you can see one of the reason why Utah’s economy is currently stronger than most of nation.

You can read the full article here: the-great-plains-drain.pdf

 

Utah’s Economy for 2008

January has been full of speculation about Utah’s economy and the economy throughout the rest of the nation. There is no question that the housing market has cooled, but there are other economic indicators in Utah that still appear optimistic. In an effort to better understand the strength of Utah’s economy Doug Macdonald prepared this handout, an assessment of a number of salient economic indicators, for Monday’s LPC meeting. The factors reviewed are:

• Wages and salaries
• Unemployment claims
• Construction employment
• Residential construction value
• Nonresidential construction value
• Long/short term yield spread
• “Misery index“
• Local sales tax

Each of these indicators is reviewed with either a red, yellow, or green light (green meaning things still look positive). You can view the pdf here: utah-eco-indicators.pdf