High value, but less affordable?

For the first time ever, Madison and Dane County property values are greater than the city and county of Milwaukee. But are those high values creating a local affordability gap that we’ll come to regret?

Earlier this month, the Wisconsin Department of Revenue released figures that showed, for the first time in state history, total property values in Madison and in Dane County have topped those in the city and county of Milwaukee.

“For generations, Milwaukee could boast of being Wisconsin’s biggest city and produce the numbers to back up its claim,” notes the Wisconsin Policy Forum in its report, A Tale of Two Cities (and Counties). “Even today, the city counts more than twice the residents and economic output of Madison, the next largest city in the state. Madison, however, is growing much faster than its neighbor to the east and new state figures on property values highlight that decades-long trend.”

Early data for 2018 shows total property valued at $28.7 billion in the city of Madison and $65 billion in Dane County, which eclipses the $28.3 billion in property in the city of Milwaukee and $64.1 billion in Milwaukee County. Comparatively, in 1988, property values in both the city and county of Milwaukee stood at $12 billion and $23 billion, more than double the values in Madison ($5.3 billion) and Dane County ($10.4 billion), according to the Policy Forum report.

“The state figures measure equalized property values, which are calculated to ensure that the tax burden is distributed fairly among taxpayers living in different municipalities within a county, technical college, or school district,” the report states. “The 2018 numbers are preliminary and could still change, but the long-term trends are clear: Dane County’s equalized value has increased nearly three times faster than Milwaukee’s over the past 30 years, rising 526% to Milwaukee County’s 178%.”

The Policy Forum report indicates that from 1988 to 2008, property values increased about twice as fast in Madison and Dane County as they did in the city and county of Milwaukee. In particular, the Great Recession hit Milwaukee hard, with a jump in foreclosures and property values topping out at $32.3 billion in 2008 and then decreasing 19.5% to $26 billion in 2015. Milwaukee County reached its low point two years prior in 2013 but followed a similar pattern, and property values have not yet recovered in either the city or the county.

Since 2013, Milwaukee County’s equalized values have increased only 12.1% and are still 6.1% below pre-recession levels, while the city of Milwaukee has fared even worse, with overall property values increasing less and remaining about 12% lower than in 2008.

The recession’s impact was felt less strongly in Madison and Dane County, and the recovery has been stronger. Values rose until 2009, then hit bottom in 2012. During that period, equalized values in Madison decreased just 6.2%, from $23.1 billion to $21.7 billion; values in Dane County dropped slightly less.

Since then, values have more than recovered, states the Policy Forum report. “Property values in Madison have risen 32.4% from the low point of the recession and now total 24.2% more than their pre-recession peak. Dane County values have taken a similar path. Much of that growth has come from residential properties, which account for about two-thirds of total values. Coming out of the recession, residential values increased nearly three times as fast in both Madison and Dane County as they did in the city and county of Milwaukee. Commercial and manufacturing property values also rose more quickly in Madison and Dane County.”

Affordability, low-income options remain a concern

“Anywhere you look, there is new construction, both residential and commercial,” notes Grant Smith, a realtor with Madison-based Free Agent Realty. “Madison and Dane County housing values have appreciated, which reflects the strong economics in the area. Population growth, along with low, new single-family construction starts, are contributing factors. Price appreciation has been particularly strong in the lower end. Homes in the lower price points continue to sell quickly.”

Smith says the local Greater Madison real estate market should continue to ride high, as many of the obstacles to an upward property value growth trend have been removed.

“Cycles have always occurred in real estate, but the same conditions that led to the Great Recession do not currently exist,” explains Smith. “We do not have significant speculative inventory being built, which contributed to the last recession. Also, banks have revised the lending practices that previously led to abuse, eliminating subprime loans and ensuring borrowers are approved for payments they can afford.”

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Still, the local real estate market is not perfect. Affordability is one factor that is limiting growth.

While the lower end of the market is still doing very well, sales of homes priced over $400,000 have slowed a bit, according to Smith. He anticipates things will pick up this fall as people return from their final summer vacations, and Dane County’s strong economy will continue to drive an active market.

“Regardless of whether the market can sustain the current level of property value growth, people will always be in the market for buying or selling their house,” says Smith. “Currently, there are no indications of value decline; however, double digit annual single-family home appreciation cannot be sustained without wage growth to support it.

“Rising interest rates will also have a moderating effect,” Smith continues. “As home sales slow, sellers will need to adjust their price expectations over time if they want to sell. I do not anticipate local builders will build an oversupply. Property values and higher interest rates most affect the lower end of the market. A decline in sales here could lead to a slowdown in the ‘trade up’ segments of the market and sellers will be locked into current homes.”

An ongoing problem throughout Dane County is creating more affordable housing options at that low end of the market, to make homeownership a real possibility for low-income earners.

“We know just how hard the process of buying a residential or commercial property can be,” says Smith. “Low-income housing is a persistent challenge in Dane County. A strong economy and population growth make this a tough hurdle. At the state and local levels, some measures have been taken such as legislation aimed at reducing the cost of owning a home and the costs associated with construction, which have created additional tax incentive programs for developing affordable rental housing.”

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