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The Housing Buble and Utah Education funding


The other day, someone asked me if I thought property taxes were still an appropriate way to fund education. Although I have an opinion on this question, I didn't respond. But the question started me thinking about how the current economic situation will affect education funding.

About the only folks that haven't heard about the collapse of a housing bubble nationwide are folks living in caves in the Himalayas. Housing prices are falling in every market in the country, and the big question is how far will they fall. Some analysts believe the bubble started just after 2000-2001. One analyst I read recently says the "bubble" has been building since the Johnson administration, another says it started in the 40's. Here in Utah, prices have fallen at least 20%.

Looking at the US Census Bureau's housing price data, it isn't hard to make a case that the numbers will fall quite a ways. Inflation adjusted median home price, nationwide, in 1940 was $30,600 (2000 dollars), in 2000, it was $119,600. For Utah, the numbers are $24,100 and $146,100. These are inflation adjusted numbers using the government's Consumer Price Index, CPI-U. (Based on the US Census data a 1940 dollar was worth 10.406639 2000 dollars due to inflation. This data does not match the chart data I got another website from http://mysite.verizon.net/vzeqrguz/housingbubble/ because the chart is corrected to 2008 dollars. The blue line on the graph tracks the unadjusted national median while the red line tracks the inflation adjusted median since about 1975.) Looking at these numbers, I would not be surprised if the national median falls to about $70,000 (2000 dollars) or $125,000 (2008 dollars), and the Utah median to about the same point. This is roughly where prices were in 1975. Roughly half of current prices.

When I started looking at this data, I thought that Utah's housing prices had not "bubbled" as severely as the rest of the country, so they wouldn't contract as much. This seemed to be the case based on the delay in home price declines in Utah. If this had been the case, then it would be possible to project that Utah's property tax collections would not fall as much as other parts of the country, mitigating the impact on Utah's school system. Looking at the census data, however, did not confirm that hypothesis.

Lets hope the Utah economy is stronger than the rest of the country and the more rapid rise in Utah home values over the last 60 years is due to other factors than a long running bubble.
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