The city’s budget outlook is strong according to a presentation by Mark Jinks, the assistant city manager for fiscal and financial affairs. But revenue expectations for the city may not grow as fast as they have for the past few years, Jinks said, warning council members to brace for a smaller increase.
According to the presentation, the average assessment will increase about 18 percent — that’s a smaller increase than last year’s 21 percent assessment increase. Single-family homes are expected to rise by 17 percent, and condominiums are expected to increase 22 percent. Assessments will be issued on Feb. 9.
"As you can see, in every one of these areas, the numbers have come down," Jinks told City Council members. "I think we’ll see very small growth."
For the past six years, rising assessments have created a windfall for the city government. Last year, for example, the city received $19.6 million in new money. But Jinks warned City Council members that the real-estate market is showing signs of slowing.
"I know that I’ve been up here for years saying that we’re near the end of the cycle," Jinks said. "But I think we’ll see a flattening out this year."
MANY ANALYSTS are now speculating that the real estate market may be slowing. Jinks cited several of the analysts, but was quick to point out that the market would not collapse — drawing a historical parallel to the economic bubble created by tulip prices in the 16th century.
"This is not tulip bulbs," he said.
Jinks questioned whether the housing market is experiencing a bubble, tiny bubbles or — as Alan Greenspan recently said — "froth." He said that unemployment numbers are low and the Washington area has experienced a 3-percent growth in payroll employment in the past year. He pointed out that the vacancy rate in Alexandria was lower than the national average, creating a strong economy in the city that has been pushing up housing prices.
"Markets that have been adding jobs have seen a pushup in housing prices," he said, comparing the Washington market to Los Angeles and Phoenix. "But this year will see smaller growth."
Jinks said that the city now has a five-year supply of housing in the market pipeline, with 18,013 apartments and 47,075 condominiums. He said that the past few years have seen a shift in the city — with new condominiums now outnumbering new apartments. As supply catches up to demand, Jinks estimated that the housing market would cool.
"I think you’ll see a lot of these condo conversions becoming rental properties," he said.
THE VAST MAJORITY of the city’s revenues come from taxes collected on real property. This year, the city collected $251 million from real property taxes — about 53 percent of General Fund revenue. The tax levied is $0.915 for every $100 of assessed value.
"I think the tax rate needs to come down significantly to offset the increase in assessments," said Chip Carlin, who led a movement of civic associations last year to lower the tax rate. He said he’s interested in the city’s new budget process, which was created earlier this year to create more transparency and help find efficiencies. "The top-to-bottom audit of city spending needs to create offsets for new programs taken up in recent years on affordable housing, open space and capital projects."
This year, the city expects a 12 percent increase in revenue. About 84 percent of that growth will be in new money from property taxes.
SOME EXPERTS doubt whether the real-estate market has experienced an "economic bubble," a situation where speculation causes the price of a commodity to reach absurd levels. By definition, the bubble will eventually burst when prices crash.
"There is no housing bubble," said Steven Fuller, director of the Center of Regional Analysis at the George Mason School of Public Policy. "Contract prices are below asking prices, but asking prices are astronomical. One could conclude that the market is a little more normal."
Fuller says that although the growth in assessments might be slowing, the real-estate market in the Washington area is still very strong.
"It’s just an ever-so-slight moderation in the market," he said. "My house sold in six days. That’s a pretty good indication of how strong the market is."
2006 PROJECTED ASSESSMENTS
Single-family houses: 17 percent increase
Condominiums: 22 percent increase
Average residential: 18 percent increase
Single-family houses: 19 percent increase
Condominiums: 29 percent increase
Average residential: 21 percent increase