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The Wrong Way to |
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No one can argue that when roads and other infrastructure are built someone has to pay. In the proposed Germantown special development district, the County and developers are saying that who that someone is will be the new homeowners who'll take a hit in their tax bills. Now I agree that the County shouldn't be paying for these improvements, but I don't agree that the County should be using its tax authority to pass what should be a part of the developers' costs onto the back of these future homeowners. Their answer to the question of who pays is variation on the developer's theme that you and I should pay their bills. On the surface their argument is simple, seductively simple. If they have to pay for the roads, it adds to their costs which they will then pass through to the purchasers. So anything we do to make houses more expensive simply gets passed along. The problem is that that's not how the market works, nor is it the only way that these costs factor into the final price of a house. In the first place, if the market were for $300,000 houses instead of $290,000 houses, they would be selling sell these houses for $300,000 and not $290.000. If they're selling a house for the lower price, its because that is the price that the market supports and not because they're doing the homeowner a favor. The fact that one item of their costs goes up doesn't mean that the price necessarily goes up. Sometimes you don't build if the market isn't there (its not our responsibility to pick up their expenses or create their market), and sometimes its profit margins that get tightened. Costs are one factor in setting a price against which is balanced market demand. Costs get passed along to the extent markets can absorb them. It only works this way if the market for the more expensive houses exists, or if there are no other ways to compensate for the increased costs. The developers are saying there's not enough market at the higher price, so they won't be able to sell the houses as quickly as they'd like. Well, that's not the public's, or the government's, problem. They want to sell their houses at the market price, while passing on part of their costs. But another way to look at this is to consider all the costs, starting with the price of the land. The fact is that the land price is driven by development costs and by the perceived market value of the houses. A lot with high development costs (the costs to take it from raw land to a buildable lot) should get a lower price than a lot with lower development costs. I've recently just seen an example of this regarding a small development in the my part of the County. If the land price is too high, given all the other factors (development costs, the market price of homes and the builder's profit objective) then the cost of land should go down. In other words, one way that the cost of roads, and other infrastructure, could be absorbed is in lower land costs. The value of land should go down if the costs associated with developing it can't be recouped by the market value of the houses. This happens all the time in the marketplace in the real world, but not, apparently, in West Germantown. Additionally, profits on land are not the only elements driven by the final price of a home. Almost everyone involved in development is making assumptions about the value of their services, not the least of which is the developer. The way the County has acquiesced, as usual, to the development community, it guarantees maximum profits to the developers and land speculators and maximum costs to the tax payers - also, as usual. Of course asking land speculators, or developers, often the same parties, to lower their expectations is equated with "not providing a good atmosphere for business." Suggesting that one or more elements in the development community pay their bills is defined as "being hostile to business." Burdening middle class homeowners, maximizing their taxes, is apparently the "business friendly" climate that is desired in our County. The development district being proposed in West Germantown is a mistake. It is also a dangerous precedent for the rest of the County. If developers are allowed to get away with this here, if we're going to impose special taxes to pay for what developers were supposed to pay for as a normal cost of doing business, then what is to stop this from being the norm everywhere. Why won't every developer ask for this kind of relief - make their housing prices appear lower than they are and make government taxes seem more intrusive than they are. All this really is, is another form of subsidy. Instead of developers and land speculators having to adjust their prices to the market, the government is taking a portion of their costs and turning them into taxes. Development districts should exist, but they should have a fee structure that covers the cost of providing the necessary infrastructure. Knowing those fees, builders, smart business persons that they are, need to make sure that they don't pay more for the land than its worth given all their development costs. The real pressure ought to be put on land prices and not County tax payers. If developers insist on paying so much for the land that they can't afford to build houses profitably, it is not government's responsibility to concoct schemes to bail them out.
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