7C - 2007 Year End Report - Laserfiche WebLink

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HOUSING TRENDS For a decade of more, most cities in Central Minnesota, particularly those with a significant amount of shoreline property, have enjoyed rapid appreciation of land values. The appreciation was caused by investments in improvements (new homes and renovations) and increased demand to live in the area. The rapid appreciation created a luxury of options for responsible city governments. As property values rise, the tax base increases and city revenues go up. City governments were often able to both cut tax rates and increase services in the same fiscal year. While there were hard choices made, they were made in an environment with lots of options. The current slowdown in the housing sector, begun by the collapse of the sub-prime market and extending now into the broader market, is likely to cause a slowdown in new home construction throughout Central Minnesota. Platting — the creation of new lots for development— is a good indicator of the anticipated demand for future home construction. While there are ample developable properties available, there is little platting taking place. The current supply of buildable lots is greater than the demand. These ebbs and flows in the housing market are difficult to predict, but the likely immediate impact is that communities that rely on permit fee revenue to cover fixed expenses will experience budget shortfalls. Longer term, however, there is a more serious problem. While the demand is difficult to predict, what is clear is that the days of rapid housing appreciation are gone and will likely not return in the near future. Government officials in Central Minnesota are no longer able to count on large increases in tax revenue year to year from a growing tax base. As housing values stagnate, the tax base stagnates, and this will mean tax revenues will stagnate. Without extra money each year, the options available to officials are going to narrow. Many cities will face a choice they have been able to avoid for a decade or more: whether to reduce or modify services or raise taxes. These will be difficult decisions. The cities that will be in the best position to respond are ones that have the lowest percentage of appreciating expenses. Permanent full and part-time staff salaries and benefits, one of the largest discretionary expenses for cities, rise each year and are not directly tied to a revenue stream. With tax revenues flat, tax increases or cuts in other areas (maintenance, investment) will be needed to maintain current staffing levels. While such tradeoffs may be acceptable in the short-term, over the long term, a community that puts off maintenance and defers needed investments will experience significant financial distress. CITY OF PEQUOT LAKES PLANNING AND ZONING 2007 REPORT 4