Slowing home sales could affect Northern Virginia tax revenue

by Heather Hayes
for Virginia Business
September 2006

Slowing home sales could affect Northern Virginia tax revenue
Skeptics said the party wouldn’t last, and they were right. After six years of double-digit jumps in housing prices, Northern Virginia’s real estate boom appears to be over. And it’s not just real estate agents who expect to feel the pinch.

The region’s county governments enjoyed major jumps in tax revenue as a result of rapid increases in property values. Because of the revenue windfall, many counties were able to cut tax rates while increasing spending. Now, property tax revenues have flattened, and government officials are faced with a less appealing choice: slashing services or raising taxes.

“ We’re definitely going to have to look at the [situation] and determine what has to be done,” says Barbara Donnellan, Arlington County’s deputy manager. The county receives 50 percent of its revenue from real estate taxes. “That means we’re probably going to have to look at finding efficiencies or making changes to levels in service,” says Donnellan.

Residential real estate assessments in Arlington have increased an average of 18 percent each year since 1999, but Donnellan expects only a 2 percent increase this year. Likewise, Fairfax County saw residential assessments increase an average of 20.5 percent during the same six-year period, and Alexandria enjoyed a 19.5 percent jump in home values last year. But officials in both localities expect increases of only 1 to 3 percent this year.

The slowdown in property values reflects the slowing pace of home sales in the region. A study by Fairfax County staff found that home sales this year are down 20 percent from last year. The study also found that the number of home sale listings has tripled since May 2005, and houses are on the market an average of nearly two months, compared with just 21 days in 2005. The average home in Fairfax County in 2005 sold for more than $540,000. The average annual property tax bill was $4,812.

Earlier this year, Fairfax County lowered its property tax rate. County officials have said they do not plan to give up the tax rate cut. Instead, they want to rein in spending with a list of cuts in a variety of areas, including the school system.

The good news is that commercial property assessments continue to grow at a 5 percent clip. “That’s a lot more in balance with the way the picture looked before this great six-year real estate boom occurred,” says Donnellan.