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	The Hidden Costs of the Housing Bubble   (October 17, 2005) An akamai (Hawaiian for astute, knowledgeable) reader pointed out an enormous financial burden being placed on non-wealthy homeowners by the housing bubble: rising property taxes. Revenue-hungry cities and counties are re-assessing all real estate at new, bubble-era prices, and adjusting the property taxes skyward accordingly. I have heard anecdotal evidence of this in places ranging from Virginia to Hawaii. It is possible, of course, to lower the assessed value of your property after the housing bubble bursts, but cash-starved municipalities do not necessarily make that an automatic process. Generally, you have to fill out a form and then wait months for the re-assessment to occur. Given that other revenue streams will be in sharp decline during a recession, the assessors' office will no doubt be instructed to be rather parsimonious in handing out lower assessments. In the meantime, all property owners will be paying for the housing bubble via much higher property taxes. Some states, including that well-known tax haven, California (that's a joke, folks) have limits on assessment and property tax increases: it is 1% a year here in the Golden State. That's all well and good for property owners who bought long ago, but what about recent owners? The absurdly inflated property taxes they are paying as a result of the housing bubble exacerbates the huge inequality that exists between those who bought cheap decades ago and recent buyers. The oldsters' property tax might be $300 annually, while their new-buyer neighbor is saddled with a $9,000 tab. These are not invented numbers, but actual numbers from our own neighborhood. Another pernicious fallout from the housing bubble may be rapidly rising "official" inflation rates. As I have pointed out here before, the Federal government's method of calculating inflation has long been manipulated in order to keep it low by under-estimating medical and housing costs. Housing, fully 40% of the weight in the calculations, is based solely on rents, which have plummeted 20% nationally as the housing bubble inflated and millions of people switched from renting to owning. Fully 70% of the populace now owns their own home. But does the consumer price index reflect higher property taxes, or the effect of rising interest rates on all those holding adjustable-rate mortgages? No, for it doesn't consider the costs of homeowners at all. One effect of the bursting of the housing bubble will be rising rents as construction of new housing dries up to a trickle and people begin losing their homes. They will again become renters, increasing demand for rental housing, and landlords will only be too happy to respond with incrementally higher rents. This will show up in the CPI, causing inflation to rise even as the economy falls deeper into recession--an apparent conundrum, as costs usually fall when demand falls (as it does in a recession). This will be the bad karma consequence of manipulating the calculations to make inflation appear low all these years. * * * copyright © 2005 Charles Hugh Smith. All rights reserved in all media. I would be honored if you linked this wEssay to your site, or printed a copy for your own use. * * *
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