A massive tax hike on the November municipal ballot in, of all places, Republican stronghold Castle Rock offers an object lesson for other Colorado communities — on how to make the affordable housing crunch even worse.
Alongside other new taxes on the ballot, Castle Rock City Hall wants local voters to slap a whopping, $7-per-square-foot tax on each home built in the rapidly growing community between Denver and Colorado Springs. The additional revenue from the housing construction tax purportedly would help fund more city services.
Do the math, and the tax would heap another $15,400 onto the price of the average new home. Builders who are developing the area peg the likely price inflation at closer to $20,000. And that’s over and above anticipated price inflation for housing due to a huge jump in the cost of building materials amid COVID.
Just when it seemed the cost of housing along the Front Range was approaching California’s, along comes an attempt in Castle Rock to push the cost still higher. It would slam the door on even more would-be Colorado homebuyers. In other words, this couldn’t come along at a worse time.
It’s an issue that matters to all of our state’s communities and especially its metro areas. Even amid the pandemic, real estate prices in Denver, Colorado Springs and other places have continued to surge. What were once simple home sales have become bidding wars.
Some of our region’s perennial price spiral is the market responding to rising demand as Colorado’s legendary livability becomes ever more of a draw to people from all points on the compass. Some of it, in turn, stems from problematic state and local policies on issues ranging from construction-defect liability to zoning. The right reforms could help increase supply, nudging prices downward.
And then there are the taxes and fees local governments levy on homebuilders — costs that, of course, are passed along to homebuyers. Those taxes and fees can add up and significantly raise the price of a new home.
So, you’d think the easiest way for local governments to help slow soaring housing costs would be simply not to pile on more such taxes and fees. And yet, Castle Rock’s tax hike would do just that — pile on — in a big way. The proposal is so alarming, the head of the Home Builders Association of metro Denver wrote the Castle Rock Town Council in July, shortly before it voted to place the tax hike on the ballot.
“Imposing another tax on homebuyers will only make new housing units even more expensive for future residents, further exacerbating Castle Rock’s housing affordability challenges and pricing more middle-income residents out of the market,” wrote the group’s CEO, Ted Leighty.
“The National Association of Home Builders’ latest ‘Priced-out Estimates’ from January 2021 indicate (each) $1,000 increase in the cost of a median-priced new home will further price 2,310 Colorado households out of the market.”
Leighty continued: “If you combine the additional costs of lumber alone with the increased cost of the proposed construction tax, and factor in the higher cost of land and labor in the market, … future homeowners in Castle Rock can expect to pay, on average, more than $50,000 more for a home compared to this time last year. This puts homeownership out of reach for tens of thousands or Coloradans and calls into question whether the town’s projected revenue could ever be realized.”
Conventional wisdom would have us believe growth, and particularly housing construction, doesn’t “pay its own way” in funding basic public services. In reality, growth typically does carry its own weight. In Castle Rock, too, as Leighty pointed out to the council:
“The Town of Castle Rock imposes an impact fee on all new residences within the municipality — with the average single-family home paying over $700 for fire, over $370 for police service and hundreds more going to support municipal services, parks and recreation.”
Public safety — police, fire and other emergency response services — should be among the highest priorities for local government. It is one of any city hall’s essential duties. And that is why it warrants being part of a city’s reliable, general funding stream.
Budget items like police and fire should not be dependent on a one-time revenue source like a fee on a new home — in an economic sector subject to wide fluctuations from year to year. New personnel for a police or fire department could be hired one year and, in the event of a sudden economic downturn, unfunded the next. That’s fiscally irresponsible.
It also doesn’t make much sense to tax only newcomers for additional police or fire protection when the entire city benefits from them — and in all likelihood had helped fund previous expansions of police, fire or other municipal services.
Above all, this proposal would deal a blow to homebuyers. Castle Rock can’t afford that. Neither can the rest of Colorado.