A great time to build


Never have mortgage rates been lower. Housing is said to be tight. One would think that new houses would spring up in Storm Lake. But they just don’t. Not like they have in Spirit Lake or Carroll, certainly, with single-family residential. Mainly, Storm Lake sees multi-family dwellings built for a largely blue-collar immigrant workforce and often owned by foreign banks or insurance companies. The city council has begged people to build single-family houses. Almost nobody bites.

The Storm Lake City Council approved three residential tax abatements on Monday for new homes or improvements worth at least $75,000. That’s for the whole year. Three.

A question pops up: When mortgage rates — which, through the magic of compounding interest are by far the biggest factor in the cost of a home — are nearly in negative territory and people insist on not building in Storm Lake, why bother offering a tax abatement? Shall we throw in a free microwave with a back scratcher and potato peeler?

We have relatively cheap lots. We have scads of workers looking for housing. We have families who would like to move out of a cramped apartment into a home where the children may play in the yard. We have contractors begging for work.

And we will throw in no property taxes for five years if you will just build a home.

Three do.

Storm Lake had a fiscal crisis this year when multi-family property and commercial property valuations dropped under a state equalization scheme. The brunt of the burden fell on residential valuations. The rest was suffered by the city treasury, which demanded that several important appropriations be cut (such as support for the police department and Storm Lake United). It could be just as bad or worse next fiscal year.

Almost all new residential single-family dwellings go up outside Storm Lake, where they do not enjoy tax abatement. The city is burdened with exempt property such as government, church and university buildings that pay no property tax or fee for service. The remaining new residential construction is multi-family, which get federal low-income housing tax credits <ital> plus <end ital> property tax abatements or tax increment financing. The result is increased demand for police, fire and other city services with an abated tax bill. In some instances, the city will help with development costs. The next logical step is to install free shag carpeting.

The fact remains that housing will be developed with or without property tax abatements when markets demand it. The market does not demand single-family homes in Storm Lake, obviously, after having every inducement but a new kitchen sink with a dishwasher. It will not until the single-family homes in Albert City, Newell, Early, Schaller, Fonda, Sioux Rapids and Rembrandt at lesser cost are sold. Or, until household income rises enough to spur single-family demand in Storm Lake.

If you can’t afford to shingle the roof a property tax abatement is just so much puffery.

Storm Lake needs the revenue. What do we do about police services, or promoting people to move into Storm Lake, in the meantime while we wait for abated properties to start streaming revenue to the city?

Somebody building a $200,000 house will build it whether you abate the taxes or not. The same is true for multi-family developers. They can cash-flow a project without a TIF or an abatement if the market is sound. If the market is unsound, that is another question entirely.

This much should be clear:

Tax breaks do not induce new housing or new businesses. Pork processors will locate in Iowa not for tax breaks but for cheap corn. Their employees will locate in Storm Lake because this is where the corn and hogs are. They did not come here because of a potential property tax abatement. Landlords do not get into another business because their property tax abatement expired — they make just as much money by raising the rent. The tax break does nobody good except possibly for the apartment complex investor which is Key Bank of Cleveland.

Quit giving it away. Eventually people will think that is what it’s worth to live in Storm Lake. And it will be worth that if we continue to degrade services because we tighten a noose around our own necks.

Stop the tax subsidies.