Budget stalemate hits housing market
Malloy’s proposal puts pressure on local taxes, home ownership
HARTFORD » A Connecticut economist and a real estate agent say Connecticut’s budget stalemate — and the proposals being put forth to resolve the budget deficit — would hurt the housing market.
Gov. Dannel P. Malloy’s revised executive order, which would go into effect if the General Assembly fails to pass a budget in the next few weeks, eliminates state education funding, also known as the Education Cost Sharing grant, for 85 Connecticut towns and reduces funding to an additional 54 communities. It restores funding at 2017 levels for Connecticut’s 30 lowest-performing school districts, including Hartford, Bridgeport, Waterbury and New Haven.
Meanwhile, Malloy’s original budget asks cities and towns to contribute to teacher retirement costs, which, according to municipalities, would force them to increase property taxes. Moody’s Investor Services recently reported that the ability of municipalities to use budget reserves is a challenge in Connecticut because the median rainy day funds for cities and towns is 13 percent, which is lower than the national median of 31 percent.
Don Klepper-Smith, an economist with DataCore Partners in New Haven, said any attempt to
balance the state budget at the expense of education grants would damage an already fragile housing recovery.
He said, even though sales of single-family homes are up this year, “median prices for single-family homes have been extremely soft.”
In July, the median price of a single-family home increased 2.7 percent to $267,000, compared with $260,000 a year ago. Prices were relatively flat for the first five months of the year.
“To cut ECS grants to municipalities as outlined in the governor’s current proposal would place significant upside pressure on local property taxes and significantly increase the cost of home ownership,” Klepper-Smith said.
He said spending power is running well below historical norms.
Anna Sava, a real estate agent in the Hartford area, said 75 percent of a home’s value is tied to the quality of the local school system. Taking away any state support for that school system will “guarantee the death of this state.”
She said it’s still a buyer’s market at the moment and middle-class homeowners with homes valued between $200,000 and $450,000 are having a tougher time selling them without making improvements.
“Gone are the days when you had the luxury of being in this town (West Hartford) and being able to turn your house for a profit with doing a minimal amount of work on the home,” Sava said.
Meanwhile, Connecticut, according to the Census, has been losing population. It also has an aging population.
“Our population is aging out, the financial burden is far too heavy on the middle portion and our sustainability is based upon how attractive Connecticut is to that young person who’s going to come here and build a life,” Sava said.
Klepper-Smith said cutting education funding would make housing less affordable at a time when the lack of affordable housing is already a major economic development issue.
If the governor’s executive order is enacted, “ECS cuts would raise local property taxes and also promote a drop in median housing prices from our current baseline scenario, where prices are already softening due to out-migration.”
He said lawmakers need to remember that for “every dollar earned in median housing values, research shows that consumers will spend another 7 cents in the local economy because of the added home equity and generally feeling better off financially. Conversely, any policy initiatives that serve to depress local housing markets and reduce housing values will inevitably have adverse effects on our state and local tax base.”