The upside of high-priced homes

In a market where prices for new homes have skyrocketed over the past 10 years and forced some buyers out, there's actually a positive side to high-priced housing.

That's the conclusion the California Homebuilding Foundation recently came to in a study published this month on the fiscal impact new housing has on local governments.

With higher-priced new homes, more money is being made off of property taxes, one-time taxes, and home-building fees, said John Frith, vice president of public affairs for the California Building Industry Association, which works with CHF.

The report, "The Housing Bottom Line: Fiscal Impact of New Home Construction on California Governments," states the average annual one-time net revenue for a new home in cities statewide is $3,017. For the San Bernardino/Riverside area, it's $2,551, and the ongoing fiscal impact is $771 and $891, respectively.

For cities in Los Angeles County, the average annual one-time net revenue for a new home is $2,439 and the ongoing fiscal impact is $558.

The report's conclusions are based on home prices from 2006.

Frith said the report debunks the argument cities have made over the years that costs for services and infrastructure outweigh the revenue generated by new home property taxes.

Matt Newman, partner of The Blue Sky Consulting Group - the economic and public policy analysis company who compiled the report - agreed.

"Local governments were often interested in retail and commercial development," Newman said. "They want not only property-tax revenue, but sales-tax revenue."

A surge in housing prices over the past five years is fuel for CHF's argument that new housing pays for itself and then some, Newman said. Besides more revenue from property taxes, one-time taxes and home-building fees, new housing attracts wealthy middle-income residents which in turn attracts commercial development that's vital to the existence of several cities.

"When you add more residents, you need more shopping malls and all the stuff people want," Newman said. He also noted the fiscal impact builders have on sales-tax revenue by spending money at local home-improvement stores while they build houses.

However, new housing's positive economic impact on local governments only came about in the past three years, according to Redlands-based economist John Husing.

Husing has worked on similar research projects for several cities. He said Inland Empire cities have consistently argued over the years that new housing doesn't pay for itself, and they've been correct in doing so.

"It's made a strong desire to put more fees on housing and tilt more economic strategy to focus on retail for sales taxes," he said.

New housing has only been paying for itself since 2004, Husing said, a time when prices were peaking or still climbing in some areas.

"It really had a lot to do with assessed valuation," Husing said, noting that CHF's report might not hold up if home prices continue declining. "Going forward, it probably will fall into a different dynamic."

Lisa Strong, management services director and deputy city treasurer for Fontana, said the city hasn't reaped significant monetary benefits from having high-priced new homes. Fontana gets 3.5 cents for every dollar the county collects in property taxes, a number that changes from city to city.

"A resident requires more services than the revenue that generates for the city," she said. "We have such a small tax rate here, it's not that big of a benefit for us."