Wednesday, October 19, 2016

Biggest Real Estate Gains, Losses, in NJ

This post looks at what towns in New Jersey have seen the biggest gains and losses in their real estate markets in the past four years.

The measurement of real estate value used here is "Equalized Valuation." Equalized Valuation is simply the market value of all taxable real estate in a town.  Equalized Valuation is calculated annually and is used to apportion county taxes and regional school districts.  If one town has 15% of a county's total Equalized Valuation, it pays 15% of county taxes.  If one town has 60% of a regional district's total Equalized Valuation, it (usually) pays 60% of the school levy.

Equalized Valuation is supposed to be used to distribute state school aid, but New Jersey's school funding law (SFRA) is non-operating, so from the point of view of state aid, Equalized Valuation has no bearing.

Equalized Valuation is calculated by taking the average ratio of sales prices to properties' official, assessed price.  If, on average, properties sell for 15% above their assessments, the town's Equalized Valuation is 115% of its official aggregate assessment.  If, on average, properties sell for 90% of assessment, the town's Equalized Valuation is 90% of its aggregate, official assessment.

(In terms of county taxes and state aid, PILOTed properties are the same as tax exempt property because they don't contribute to Equalized Valuation.)

As usual, I've made the data (obtained via an OPRA request to the Treasury Department), available online.

Overall NJ Real Estate is a Stalled Asset

The total value NJ's real estate is barely moving.   In the last four years, the median town's market valuation has only increased by 2.1%.  This lags inflation, which was 3.64% from 2013 to 2016.

The weighted average, however, is an increase of 4.3%, as NJ's total Equalized Valuation increased from $1,159,890,947,281 to $1,209,186,432,406.  That is powered by the gains in the mega-Valuation cities of Jersey City and Hoboken, both of whom are in the top five for total Equalized Valuation and thus have "heavier" weights than 99% of other NJ towns.

South Jersey is Hurting

As always, the average masks great diversity.

Atlantic City and its environs have collapsed, pulling down the state's total. Atlantic County alone has lost $9 billion in Equalized Valuation, from falling from $45.1 billion to $34.9 billion.   Salem, Sussex, Sussex, Cumberland, and Gloucester have also lost Valuation.  Warren's growth has been trivial.

The towns that have lost the most are mostly in South Jersey, although Paterson, Irvington, East Orange and a few other northern cities also appear among the biggest losers.

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The Hudson River Shore is Booming

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On the other hand, Hudson County has boomed, from $57 billion to $71 billion.  Jersey City alone gained $7 billion, which is 15% of the state's total gain.  Jersey City's $25.7 billion in Equalized Valuation is almost equal to the total Equalized Valuations of Sussex and Warren counties.
Over 14% of NJ's Growth in Equalized Valuation ($7.1 billion
out of $49.3 billion) has been in
Jersey City alone.

The booms in Hoboken, Jersey City, and Weehawken are old news though.  What's interesting about this cycle is that North Bergen, West New York, Harrison, Guttenberg, and Union City have had extremely strong gains.  Would I call North Bergen, West New York, Harrison, Guttenberg, and Union City extensions of the "Gold Coast"?

No.  But they are getting there.   

Kearny and North Arlington did well too, although that could be from increases from non-residential property, such as logistics.

Atlantic City has lost $15 billion
in Equalized Valuation.

Bergen County also gained $9 billion, from $161 billion to $170 billion, with its southern section doing well, including Fairview. Monmouth has gained $7 billion.  

Implications for State Aid

The formula for Local Fair Share in NJ for 2016-17 is

(Equalized Valuation x 0.013156218 + Aggregate Income x 0.046185507)/2

So, for every $100 million in Equalized Valuation a district gains, its Local Fair Share would be increased by $657,810.  Since Equalized Valuation and Aggregate Income usually move in tandem, the actual increase to Local Fair Share would probably be greater than this.

Looking at the towns that have lost the most Equalized Valuation, it's easy to understand why state aid redistribution is so important to Senate President Steve Sweeney.

Sweeney's own District 3 is suffering.  Greenwich, Paulsboro, West Deptford, Penns Grove, and Carney's point are all represented by Sweeney and experiencing increases in their school tax rates caused by declining real estate value combined with increasing taxes.

Chris Christie has kept state aid frozen since 2013-14.  It's unclear what he is going to do in his last budget for FY2018, but regardless, New Jersey's next governor is going to have a lot of mess to clean up as our budgetary crisis and inflexible state aid meet the reality that many districts have gotten poorer and/or larger and need resources currently given to districts that have gotten richer and/or smaller.

Redistribution is Needed Now!!


See Also 2016 Equalized Valuations Out

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