Effects of High Rates of Foreclosure

Posted on October 15th, 2009 by Samanta Parks

foreclosure

Foreclosed houses, along with unsustainable growth, could ruin the local government’s tax base. This warning has been issued by the governmental services center of Auburn University after its research on recently released American Census Bureau information regarding the unit growth of housing.

Researchers at Auburn University compared the data of housing from the Georgia and Alabama states in order to gauge the overall effects of today’s recession, along with its bubble of real estate on taxes of property which fund the services of local governments and the governments themselves. They found versions like the old fable of the hare and the tortoise. Georgia, who is the hare, added brand new units of housing at much quicker rates than Alabama did from the year 2000 up to last year.

However, when the bubble of real estate popped, Alabama, who is the tortoise, happened to be in a better position in order to deal with the storm. Counties in Alabama will not go through problems of property tax, which several places within Georgia will be facing while tax payments get missed on houses that are foreclosed.

From the years 2000 up to last year, Georgia added around 744,000 units of housing, a growth rate of 22.4 percent, ranking Georgia as number four on the states that grow the fastest. By comparison, the Alabama state added around 195,000 units of housing, showing a growth rate of 9.9 percent, ranking it as number 24 throughout every state.

However, Georgia got hit by foreclosures much harder. Information from RealtyTrac shows that Georgia had around 92,611 foreclosures within this year so far; this can be compared to only 14,963 within Alabama. This would make the rate of foreclosure in Georgia on available units of housing lie at 2.3 percent, around four times more than Alabama’s overall rate of around 0.6 percent. If we assume that the regular household in Georgia shells out an annual fee of $2,684 on taxes of property, as The Tax Foundation estimate, the foreclosures of Georgia represent a possible revenue delay or loss to local and state governments of around $249 million.

When compared, the lower burden of property tax in Alabama of $1,080 for every household, along with its reduced rate of foreclosure amount to much smaller possible financial delays or losses of revenue of merely $16 million. When it comes to the census information, the counties of Alabama with top growth rates within units of housing from the year 2000 up to 2008 were Lee, Baldwin, Madison, Shelby, Russell, Tuscaloosa and St. Clair. They all showed housing gains of at least 14 percent, but usually more.

They are not stating that housing development growth needs to be completely avoided. However, they do point out that cities and counties need to be more watchful when huge housing growth occurs. The bubble of finance could burst, leaving a revenue-less local government that would have to be paid back through bonds which financed the overall infrastructure needed to grow, or pay for wider services required to areas that were newly developed.