Incentives for Housing

Have you seen the newly released remake of True Grit yet? The main character (Mattie Ross) opens the movie with "You must pay for everything in this world one way and another. There is nothing free except the Grace of God". Economists are by training mindful that on this earth nothing is "free". There is the constant thought of opportunity costs (the utility, or benefit, of one option forgone with the choosing of some other option). Calculating and allocating the limited resources there's a recognition that every transaction has winners, loosers and often free riders. Yet with common goods, there is a delination as to whether costs or benefits from transactions or a policy are to increase the welfare of the individual or the community as a whole. And every now and then there arises a deal or policy where in the context of the whole, everyone comes out a winner to some degree.

After speaking at length with Crookston's Housing and Economic Development Authority, I think that Crookston's local tax abatement (two year) for those building on discounted, plumbed lots fits this category. It is a type of grace, given to attract building on the NE edge of town. New home builders-whether new to Crookston or longstanding residents-choose a candidate lot and are basically get refunded taxes up front two years of taxes (which will be paid back as regular tax payments out of a mortgage escrow for those two years and then beyond). This gives the builder more immediate monies to finance their buildling efforts with. As I understand it, while the city and school district (joint venture) 'forego' tax revenues for a couple years due to the immediate rebate, it is income they would not have had without the building activity as empty city owned lots generate very little- if any- revenue. It is true that the city and district could use the initial two year's of tax revenues for investments or their own operating costs for those couple of initial years if they didn't offer an abatement, as revenues (not profits) are generally comprised of quantity multiplied by price. Yet here, the quantity of new buildiers willing to move forward and the height of value/price to be taxed for years to come may be compromised by not offering abated money immediately (not withstanding the logistics of availability of money/loans and cost/interest). By the design of our state taxation system, the city gets the same overall pool of taxes regardless of how many residents it recruits. Thus the burden decreases for individuals as it gets spread out amongst more payers. There are positive externalities to the albiet small sustained amount of growth that Crookston's abatement lends to. This year three lots qualify.

The school district doesn't incur any direct fiscal costs by being a part of this incentive. And while this incentive drops the price/tax for individual residents in Crookston, those living outside of the city yet inside the district stand to gain from this in that any additional students enrolled (up to certain operational break points) will reduce the cost of education per pupil by the adding many thousands of dollars to the district's coffers through state funding). NOT being a public finance guy, nor fully understanding the housing market, it seems that on the surface this is one of those infrequent situations where though certain individuals of the community (school district) may recieve a larger benefit than others, the societal benefit is greater than the social costs incurred by this municipal policy. We tolerate similar (though not exactly the same) leveraging of individual gain versus the gain of the whole when we participate in insurance pools. There's been the idea voiced that this incentive denies full benefits by some who live in the school district, yet outside the city limits where the incentive is offered. Yet by default, attraction policies are created to redistribute residents/goods/services with the understanding that people are free agents to be competed for in the free market of 'residency'. In a general sense, businesses and communities sense that. And while there may be negative externalities that were unexpected, they know that at certain levels growth often brings benefits due to larger economies of scale. Since enacting this incentive, the city has marketabley grown with new homes, and there are plenty of older used homes on the market as well (which still have taxes paid on them). In some policy cases the whole community can be a winner- though some individuals winning more than others.

About this Entry

This page contains a single entry by artlnash published on January 14, 2011 8:19 AM.

Making the case for Mobile Websites was the previous entry in this blog.

Laboring over labor markets ... is the next entry in this blog.

Find recent content on the main index or look in the archives to find all content.