For the real estate industry's model of growth at any cost: the bill comes due ... by gimleteye

A Miami real estate agent, Luis Alvarez, publishes a letter in The Miami Herald along the lines we have pointed out in this blog: that official statistics on the depth of this recession/Depression understate the damage to property values by failing to include distressed sales. These sales comprise the majority of real estate transactions today. The writer notes that while taxpayers must pay millage rates based on imaginary values, banks will only write mortgages based on independent appraisals-- appraisals that must take into account all transactions in the neighborhood of similar properties including foreclosures.

The political reality is simple enough: if assessed values are pushed down-- because taxpayers insist on equitable treatment of their market value-- millage rates have to rise. It is a conundrum that politicians and their enablers, including the real estate industry, hoped to avoid. Past recessions have come and gone, inflicting damage, but leaving intact the theory that property values will always rise or only decline slightly. This one is different. Way different.

Like all assets based on speculation-- tulips in 16th century Holland for example-- the market value of houses has been knocked off its foundation. Knocked hard. The US government cannot print enough money to maintain the illusion of housing values. Writer Alvarez makes a lamentable point: "Our local and state governments took in windfall tax revenues during the boom years of real estate. What did they do with this extra revenue? They forgot to save for a rainy day. They spent it on pet projects, while the rest of us were doing the responsible thing and cutting spending."

But those pet projects, in aggregate, are what the real estate industry-- that employs Mr. Alvarez-- wanted. The massive expansion of government is in large part keeping up with the costs of growth: growth of ring suburbs and of providing essential services like police, fire and public welfare in farmland and environmentally sensitive lands whose conversion value accrued mainly to bankers, land speculators, and puppeteers of local municipal and county government.

Today, Florida's population is decreasing for the first time in modern history. At the same time, utility executives at companies like Florida Power and Light are making millions in compensation while using rate payer obligations to ram twenty plus billion dollars in new nuclear reactors at sea level in South Dade, all in expectation that this recession/Depression is just a blip; an aberration. You may be required to draw down your credit card line of credit, but you can be sure that large speculators who own enormous mortgages on farmland outside the Urban Development Boundary are, hand-in-hand, with lenders avoiding repricing of the toxic deals they created at the end of the boom. Wage inflation tells another sordid aspect of the same story: that those who can are grabbing and taking whatever they can, now.

It is a bad time to try and figure out what comes next. Predicting the bust in housing values was easy in comparison. With federal printing presses running at full speed and the mainstream media declaring the recession is over, with property appraisers holding up the pre-crash values of properties with a pen and elected officials imagining that deficits can be accumulated without consequence, only one thing is crystal clear: the growth model that Florida's real estate industry held up as the model of wealth and happiness was a fraud. Perhaps-- since politicians and candidates for public office are living in a dream world-- Mr. Alvarez can ask his industry lobbyists to inform us all, how its future policies on growth are different from the ones that contributed so mightily to this fiscal and economic nightmare.