my property value be affected by the referendum?”
By: Brett Martin, Certified Indiana Residential Appraiser
Document available at:
The most probable answer is yes…in one way or another. If the referendum
in any way changes the perception of the
quality of the schools, as compared to currently, as well as compared
to other school corporations that do pass referendums, home prices will react.
From the National
Association of Realtors
“Field Guide to Schools
and The Home Buying Decision"…
the local neighborhood amenities that can influence a buyer's decision to
purchase a home, proximity to good quality schools is one of the
Franklin Township homes are
currently marketed by agents for having
high quality schools. (Meaning that current sales statistics and median prices include sales transactions marketed for high quality schools/amenities)
A losing referendum; i.e. increased class sizes, no bus service, and no
specialized teachers will most certainly be perceived by “potential home
buyers” as a community in decline due to reduced school amenities-
even if the current educational quality is able to be maintained. (Potential home buyers not only compare competing homes within Franklin Township, but also homes offered in competing Townships and Counties surrounding Marion)
home buyers typically report choosing their home locations based upon
the set of amenities available in the community; i.e. schools, employment
opportunities, proximity to shopping and hospitals, etc.
the more amenities offered by a community, the more people want to move
there. The fewer amenities
offered, the more out-migration is witnessed by those with the means, and
the less people from outside the community want to move there.
If the referendum does not pass May 3,
2011, Out-Migration is certain to occur with those with
the means to send their children to private schools.
Every single child lost to private schools or that moves to
a competing community
that passes their referendum will exacerbate the Township’s revenue shortfall
forcing the schools to continue cutting additional services not yet identified.
Public Services quality/quantity declines due to the Continuation of
declining home prices due to macroeconomic conditions will be exacerbated in
states with “capped” property taxes. House prices peaked in 2006 and have
fallen sharply until stabilizing in 2010.
However, when accounting for higher underwriting
standards than in the prior decade, the significantly reduced credit
facilities available for mortgage finance, the amount of bank owned inventory
yet to be cleared, the number of “stuck” homeowners that owe more than their
home can sell for, rising mortgage interest rates, and the closing of Fannie
Mae/Freddie Mac, median prices are almost certain to continue their decline.
Property Tax Cap Effect on Public Schools:
Because the State of Indiana’s maximum amount of potential property tax
revenue available to the state, is now tied to property values (I
forecast to decline), future state property tax revenue will also decline.
If I am correct about further home and commercial property
price declines attributed to macroeconomic mortgage conditions, money amounts
currently allocated to school corporations will continue to decline unless
education is given a higher allocation/priority in the State budget by Indiana
legislators than presently.
Township is now responsible for their home price performance.
Franklin Township is one of the two lowest density Townships in Marion County.
Lack of bus service therefore would most
likely be a VERY negative factor
to “potential home buyers”- meaning it could be harder for
existing Franklin Township homeowners to sell their homes if the referendum
does not pass.
Where can I read
more about how schools affect my property value?
From the National Association of Realtors website:
From the Federal Reserve Bank of Philadelphia: http://www.phil.frb.org/files/br/brso98tc.pdf
Non-Realtor Study: Conclusion from the Federal Reserve Bank of Philadelphia:
SO WHAT ARE WE BUYING WITH THE SCHOOL PREMIUM?
This survey of housing prices and school quality has identified at least two possible sources for the school premium: the resources available to the school and the composition of the student body. Even though the overall relationship between school resources and student achievement is a matter of controversy, most researchers agree that when extra resources are used wisely, they can enhance the quality of education and thereby contribute to higher house prices. These extra resources might be used to improve academic achievement, but they might also be used to improve other dimensions of school quality, such as the physical attractiveness of the school or the range of extracurricular activities.
The empirical evidence also shows that academic achievement can be improved by the peer group effect. This effect represents a classic spillover, whereby students reap benefits from the personal and family characteristics of their classmates. Therefore, prospective home buyers are applying an appropriate yardstick when they focus on average test scores to help decide what the school premium should be. The peer group effect justifies higher house prices in areas where schools have higher test scores. It is not easy to disentangle the school premium from the value of many other neighborhood characteristics. But the premium clearly exists, and it is an important factor in the difference in house prices across neighborhoods.
”Do Mortgage Lenders care about neighborhood amenities?”
Mortgage lenders care greatly about neighborhoods because they affect a
property’s liquidity and potential sale price.
Supplemental Addendum to Mortgage Lenders we include on all of our current
Franklin/Perry Township and Center Grove-Greenwood appraisals:
Estimated Macro/micro economic implications of Proposed School Corporation
upon non-political studies completed of prior similar measures in other states,
School tax and spending limitations imposed by the State upon Franklin Township
are estimated to reduce public school enrollments by causing a shift of students
away from the public schools into private schools, and the movement of families
away from tax-limited (failed referendums) districts and into non-limited
(passed referendums) districts.
Additionally, this downward spiral is magnified by the fact that the district
receives funding on a “per child” basis. With each lost child to competing
communities that pass referendums, the school corporation faces even more cuts
in school “quality”.
example, Hamilton Southeastern and Carmel both passed referendums needed to fund
the gap left by the “Indiana property tax caps”; therefore these competing
communities will be able to retain the service levels and quality (and
perception of quality) of schools, as per test results, currently reported in
Franklin Township. Districts like these are estimated to grow while districts
unable to pass referendums are estimated to shrink as they are not as attractive
to the estimated majority of potential real estate market participants.
The effect of a losing school referendum on property values is estimated
negative for Franklin Township; positive for those competing school
corporations that pass theirs due to in-out migration. Amenity quality
affects home values and schools are the number one estimated amenity for
most migratory families under age 60. Not surprisingly, school perceptions
are typically a major factor in median home values.
Quality/Declining property value spiral: Because declining-enrollment districts
attributed to those unable to pass referendums, are districts in which property
values are also estimated to decline, these districts are estimated to be the
ones in which residents are consistently the least likely to vote to override
Indiana school funding revenue limits with referendums even though these
districts need to spend more per student just to maintain the same historic
service levels due to continuing/increasing fixed costs.
Research has shown that educational quality often suffers when tax limits
(property tax caps) are imposed, even when referendums are approved. Voters
typically report thinking that by voting against an override (referendum) they
are voting to cut waste, fraud, and abuse while leaving quality unaffected, but
in reality the spending cuts they are voting for are essential to educational
quality. When there is wasteful spending in public school corporations, tax
limits and referendums are estimated insufficient instruments to correct the
behavior as compared to administrative changes.
school tax referendums typically offer voters the only opportunity to vote
directly on their taxes, many voters typically vote against referendums because
they simply want lower overall taxes. Those same voters typically report not
wanting any public services including education to be cut, but still want to
opinion of the appraiser, voting against school referendums geared at supporting
desirable quality education, often the keystone of the community, is voting to
destabilize own property values.
proposed school corporation referendum in Franklin Township does not pass, it
will cause the majority of family sized properties in the Township to become
much less attractive than in very proximate alternative communities such as
Hamilton Southeastern and Carmel which passed school referendums to make up the
short fall attributed to Indiana’s short sighted property tax caps.
my opinion that a failing referendum means median home prices in the Township
will decline a significant amount from present values, continue to decline over
time, and stagnate as market participants leave for competing communities that
passed their referendums which serve to make their communities more desirable.
Township School Referendum