Middle-, lower-priced properties expected to carry future tax burden
The tax burden likely will shift onto New Canaan's middle- and lower-priced properties after the upcoming revaluation, town officials warn.
"The revaluation changes the game in a big way," First Selectman Robert Mallozzi said at March 5 Board of Finance budget meeting. "Those homes that are bearing the big burden are going down.
Those homes from $1 million to $1.8 million are going to be bearing much more. This is a monumental change."
Mallozzi said he was worried that many residents, already faced with an estimated almost 4 percent increase in taxes, would also be hit with a higher tax bill as a result of the revaluation.
The state requires that each town reassess the value of each home every five years. New Canaan's last revaluation was in 2008, and now values must be adjusted as of Oct. 1, 2013. Doing so is one of the main jobs of the town assessor, Sebastian Caldarella.
"The state gives us a year and we analyze sales," Caldarella said in an interview. "We started last August, with the condos. The first process is data collection to make sure the data is correct, like the number of bathrooms, bedrooms, etc. Once that's finished and we get closer to Oct. 1 date, then we review and give new values."
New Canaan's revenue is based almost entirely on real estate taxes, in the form of the mill rate. Therefore, however the values of homes have changed since 2008, that will be the change in taxation.
What some people, and the data, says is that the highest-priced homes have lost the most value since 2008, while the mid-range homes and low end of the market have stayed the same. Since the same amount in taxes will have to be raised regardless of who is paying them, the percentage of the tax burden the highest end will pay will be significantly lower, and picked up by everyone else.
"As a Realtor, we're experiencing a compression in which the bottom of the market has largely held its own or increased its value and the top of the market has been affected by Wall Street and have lost a lot of their value," John Engel, Brotherhood and Higley realtor and Town Council member, said in a recent interview. "The loss in value of the top is going to have to be borne by the bottom and the middle."
Coldwell Banker Director of Sales Dave Wilk agreed that the mid-range market is carrying New Canaan sales.
"The lower end of the market has been very, very active in New Canaan," he said. "That has been driving the market since the recession. The bread and butter properties, those around $1.7 million, we're seeing activity there. In the mega upper tier ($5 million and up), we have not seen activity at all."
But there are some factors that might lessen the magnitude of the shift. One of those is what can be thought of as new wealth. One example of this would be when a developer buys a lot, subdivides it and builds several new houses in its place. What was once a $2 million property is now three $1.5 million properties. The market for land that can be built on is hot right now, Engel said.
"The tax burden phenomenon has been mitigated by the increase in building over the last two years," Engel said, "in which sub-$1 million lots have been replaced with $2 million to $3 million homes. The average land sale two years ago was $700,000, last year it was $780,000. That's more than a 10 percent increase, and I see that trend continuing."
The extent to which new homes and additional homes create value, they will also take up some of the tax burden.
Additionally, Mallozzi said the town will be looking into ways of phasing in the effects of the revaluation, in the way Stamford did in 2012, when it faced a similar problem. That plan allowed the city to phase in updated property valuations over a five-year period.
"While we have seen improvement in our overall economy, we must continually look for ways to mitigate the impact of the recession on Connecticut residents," Gov. Dannel Malloy said, according to a Stamford Advocate article, at the time.
Of course, until the revaluation is completed, any concerns amount only to speculation. The real estate market certainly has the capability of major changes at a moment's notice.
Wilk said he has seen a recent uptick in activity at the higher end of the market.
"There haven't been transactions there over the last couple of years, but we're seeing more activity and interest in that range," he said.
"It's hard to determine because sometimes we see signs that some properties are increasing while others are decreasing," Caldarella said, on the uncertainty of the market. "To speculate ... If I knew what would happen, I wouldn't be working here."
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