Monday, March 4, 2013

How Do Property Taxes Impact Home Values?

This chart plots tax rates over time for all 10 municipalities in Hudson County since 2008.  Keep in mind that the real estate crash occurred in October of 2008.

It's notable that Guttenberg made sizable tax cuts after the crash at a municipal level.    Jersey City cut taxes slightly but remember, Jersey is a class one city with over 240,000 residents and covers a large geographic area.  Their mild tax cut was likely not distributed equally given how different the socio-economic demographic is downtown vs other areas within Jersey City.  Jersey City also has a very high level of use of Payments in Lieu of Taxes (PILOT) which is basically a form of tax abatement.  When a building gets an abatement or PILOT, they are paying less for the given value of that real estate in relation to their neighbors.  Those not under a PILOT make up the slack if budgets go up while those under PILOTs/abatements are protected from tax increases for the term of the abatement.

There are 3 parts to your property taxes:  Municipal - controlled by the city's Mayor and Council, County which is controlled by The Hudson County Board of Freeholders and the city's Board of Education/the school budget.  

Here is a chart of the municipal portion of Hudson County Taxes controlled by Mayor and Council.

West New York and Hoboken were able to cut their municipal taxes.  Notice how JC's municipal taxes went up precipitously and then leveled off around 2010.  Bayonne, East Newark, Harrison, Kearny, North Bergen, Weehawken and Secaucus taxes went up consistently over the period.

Here is a chart of the County Tax.

Notice how Guttenberg's county tax went down dramatically.  So both its Municipal and County tax went down which makes up two of the 3 components of real estate tax.  You will see below, Guttenberg also cut the school tax levee.  They cut all 3 components so it's not wonder their overall tax rate went down the most in Hudson County.  

East Newark as well although it popped back up.  Notice how Hoboken's county tax went up dramatically as well as West New York.  Union City's county tax went up gradually but consistently over time as most municipalities.  Notice how gradual JCs county taxes went up.  So JCs municipal tax went up dramatically and the county went up gradually for JC.

There are 9 County Districts that cross 12 cities.  Because Jersey City has the largest population, it really has the most control of the county and a disproportionate amount of the County budget goes to Jersey City.  Harrison, East Newark, Kearny and Union City get a disproportionate amount of county services because of their socio-economic demographic when you look at it as a dollars/capita basis.  The point here is, you and your town (unless you live in JC) have little influence on the County budget.  

Through voting in local elections, you can have an impact on your city's and school's budgets and therefore your real estate taxes.

Here is a chart of the School District Taxes over time.

Again, you can see that Guttenberg was able to dramatically cut it's school taxes.  Some school boards were able to hold the tax levee basically flat:  Hoboken, Harrison, North Bergen, Weehawken, Union City.  Others increased the tax levee: East Newark, Bayonne, Kearny, Jersey City, West New York.

Governor Christie cut a lot of state grants to school districts which required districts to respond quickly to find ways to cut their budgets.  He also put in changes to the pension system at the beginning of his term that encouraged many to retire.  Those that were eligible to retire, where it made most personal sense to retire tended to be people at the higher end of pay scales.  This, to some degree, countered the effects of cuts to schools districts.  Some cities were ahead of the game.  In 2008 Hoboken went under state supervision because of the City Council's unwillingness to approve a city budget which prevents the issuance of tax bills.  The Fiscal Monitor has all the control of the Mayor's office and the Council combined.  She (Judy Tripodi) was able to just make decisions/cuts expediently. She raised taxes immediately to cover budgetary obligations and immediately started cutting costs.   The School Board followed suit given the heighten public scrutiny on taxes.  Because this effort started in 2008 by the time Christie won the Gubernatorial election, both the School Board and the Municipality had found significant cuts which made cuts in state grants more palatable.

Dave Bartol, in my office, analyzes real estate transaction volumes by city for some key Hudson County cities.

Hoboken was the most stable market within Hudson County and even the state.  Transaction volume peaked in 2003 with a smaller peak on the cusp of 2006/2007 (984 transactions).  It went down less after the crash in comparison to other areas.  Transaction volume went down about 33% from 2007 peak before the crash to the trough in 2009 and has been coming back up since then at a consistent pace and is back to 2001 volume.

Downtown JC peaked in 2007 with 492 transactions.  Notice how even though Downtown JC is almost twice the geographic size and has twice the number of housing units as Hoboken it did half of the transaction volume in 2007.  It went down about 40% after the crash to the low in 2009 of only 286 transactions and has come back to 2007 levels.  Notice how Hoboken crashed less in relation to Downtown JC.

When you look at Jersey City Heights you can see that it took a much greater hit.  At the peak in 2007 it closed 170 units, still meager in comparison to Hoboken and then took a nose dive to 46 units in 2009 a shocking 71% decline in transaction volume.  And now it's coming back sharply at 104 units in 2012 or back to 2002 levels.

This tells the age old story of established area vs up and coming.  Jersey City Heights has been gentrifying at a relatively more rapid rate in comparison to other areas and I believe this rebound demonstrates that.  With Christ Hospital on the south end, sequestered off by Route 139, Mountain Ave that provides a way down the cliff to Hoboken's 2nd Street Light Rail Stop and Hoboken's 1st St Hop Line the 9th St. elevator and Light Rail stop it's connected to Hoboken and the city in a way that Union City, other areas of JC are not.  The whole area looks better and better.  C-Town Grocery is clean and has a great produce section and we are seeing renovations of such historic properties as the Trolley Lofts.  Of course, the properties on the cliff with NY views are being renovated at a fast pace and are going for "Hoboken like" pricing.

West New York peaked at 167 transactions in 2007, dove to 79 in 2009, bounced a little but floundered again to 68 transactions in 2011 and still is floundering with only 84 transactions in 2012.  Recovering albeit slowly and with volatility.  Taxes went up after the crash came down a little and leveled off.

North Bergen peaked not in 2007 but in 2005 with 207 transactions, dove in 2009/2010 to 69 (yikes) and is back to 2008 levels at 118 in 2012.  Absolutely no decline in taxes over the period.  In fact, a slight consistent climb.

Union City peaked in 2007 with 194 transactions and has consistently been dropping all the way to 64 transactions in 2012.

There is no year since the peak where it rebounded at all:  2007 - 2012:  194, 132, 81, 75, 67 and 64.   Absolutely no decline in taxes over the period.  In fact, a slight, consistent climb.  But in addition to the climb the tax rate per assessed value is extremely high.  Look at how the level of tax per $100 in assessed value:

Union  City

That's $6.401 for each dollar in assessed value.  The average single family in Union City sold for $157,000 in 2012, The average multi-family sold for $222,000.  In 2012 the ratio between value and assessed value for Union City was 48.37%.  So on the average single family for a $157,000 value home, the assessed value if assessed in 2012 would have been $75,940.  With a tax rate of 6.401 for every $100 in assessed value or 759, you pay $4,858!!  For a average multi-family home the average assessed value would be 222,000 x .4837 = $107,381.  1,073 x 6.401 = $6,868/year in real estate taxes.

To compare, if there were a $157,000 home in Hoboken (ha, ha) the assessed value would be 31.01% or $48,685 and the home owner would pay, 486 X $4.75 (last years tax rate per $100 in assessed value) or $2,308.  Net, net the taxes are basically double per unit in value.

You can see why Union City has not recovered like other areas on Hudson County.  They need to get a handle on their spending and/or figure out how to generate more revenue through means other than taxes.  Their taxes are killing property values.

Donna Antonucci
Prudential Castle Point Realty