The U.S. home price drop is adding a further drag on local budgets by shrinking the property tax base, according to a new study from the Federal Reserve Bank of Cleveland.
That sets the current episode apart from other recessions, where rapid housing rebounds alleviated some of the budget pressures naturally associated with periods of contraction. The report’s authors, economists Thomas Fitzpatrick and Mary Zenker, explain:
During and after earlier recessions, home prices remained flat or increased. Stable home prices provide stable tax revenue, which is used to fund many critical city services, such as the local police force, fire department, public education, and infrastructure projects. The fall in property values that began in the recent recession — and that continues in many markets today — may be amplifying the budget crises across the country because of the decline in property taxes it is causing.