Saturday, March 03, 2007

Waukesha's Magic Number.

It is quite the interesting number—referred to often in Waukesha City Council discussion and in news reports of developers approaching the Waukesha Plan Commission. Don’t look for it in the ordinances; it’s more like a principle, a benchmark, a little nugget of conventional wisdom.

Here it is: A new single-family dwelling in a new subdivision shall, ideally, carry a $360 thousand sale price/assessed value, in order to be worth Waukesha’s while.

Jim Payne, City Administrator, did the number crunching several years ago, and asserts--even today-- that this number is right-on-the-money. It is what's needed to produce enough tax revenue for the city of Waukesha to stay solvent and expand services to meet the increase in population.

It is clearly not hard-and-fast; some budget tract mansions (lacking granite countertops) are going for less—but not much less. Moreover, when the rare proposal for low-and-moderate income housing comes up, those houses have to be, by definition, in the range of $190 thousand to $200 thousand.

But, the pressure is there--get all the new stuff to average upwards of a third of a million bucks. Otherwise, the city will not be able to maintain the same level of services to existing residents, as well as the new ones.

How much does it take every month to pay for a house-and-yard that’s priced at $360,000?
The newspapers and the internet are full of teaser ads. . . Mortgage Rates Near 40-Yr Lows $310K loan for under $999/mo. . . . that make one think it isn’t really so much. Read ‘em (and weep over) the fine print. Here’s what I worked out with an old fashioned mortgage guy. He says a prudent person (the only kind he’d make a loan to) with a 20% ($72 thousand) down payment can get a mortgage of $288 thousand, with a fixed interest rate of 6%, for 30 years.

The monthly payment would be:
Principal and Interest $1775
Taxes $540
Insurance $85
Total $2,400 / month
That’s a big nut to crack every month. And it raises a question: what kind of family income does it take to shoulder a monthly obligation of $2400 every-single-month, for the next thirty years? Assuming the normal expenses of suburban lifestyle, plus furniture, kids, existing debt, savings for retirement, heat and electric, kids, college loans, a couple of cars and a Harley, not to mention kids, a prudent lender wants to see $105 thousand-a-year in income.

To those who have that much down payment and that much income, I say mopar to ya. I encourage you to settle in Waukesha, in a house, priced at $360 K. If you manage to just barely meet the criteria, prepare to eat macaroni and cheese every night in house with no furniture.

To those who don’t meet the income standard (or cannot count on maintaining it) I’d suggest trying to live well, but not that well…. Don’t go after a starter manse that costs upwards of a third of a million. If you, the potential buyer, lack a substantial down payment; if you need an Adjustable Rate Mortgage to get payments you can handle; if you are counting on your house as an investment that’ll appreciate thirty percent every four years, or--and this is the big one--if you cannot afford the taxes on a $360 thousand residence (which will, of course, go up 30% if your hopes about appreciation turn out to be realistic), don’t even go to the open house, don’t burn little candles of desire for this kind of over-hyped and over-priced subdivision lifestyle.

This codger, who has lived in two houses in Waukesha over a span of almost thirty five years, who raised two kids in a really fine working-class neighborhood where they could walk (not that they always did) to elementary, middle and high school, plus two years of University of Wisconsin, will not have to listen to whining from those who have chosen to get in over their heads--but think the problem is the taxes. The problem is with the choice made, or about to be made—to get in over your head.

If you cannot afford the taxes on a $360 thousand house, you cannot afford the house.
Finally, this isn’t an argument for retaining the property tax, as is. I believe schools should be funded by income tax, rather than property tax. But, city and county government and services will remain forever supported by the property tax; and the amount paid will always be tied to the assessed value of each citizen’s real estate.

And, what does all of this have to do with water?
Quite a bit, actually. We have enough water for now, and enough for a conservative future. We do need to conserve it. It's the CONSERVATIVE thing to do. We might do well to recognize that continued uncontrolled growth of the city through annexation will produce a situation in which we do not have sufficient water from our only available source--deep wells and shallow wells.

Cutting back on development and annexation is the sensible choice. Pursuing an incredibly expensive and decidedly iffy path like trying to get expensive Lake Michigan water pumped to Waukesha (and then back to the lake) is not the choice of the homeowner who is concerned that the taxes are too high in Waukesha.

Thursday, March 01, 2007

The Wall of Pain

"The crimes in Chinatown include incest and murder, but the biggest crime is against the city's own future, by men who see that to control the water is to control the wealth." Roger Ebert, 1974

This blog may have a title that focuses on water, but, as in the 1974 Oscar-winning film (Eleven nominations, just one statue, in the year of Godfather II) starring Jack Nicholson, Faye Dunaway and John Huston, the thing that underlies all of the action is people who buy land cheap by manipulating water, and sell it dear after they've induced the taxpayers/government to assure an endless water supply.

Waukesha's no Chinatown, but it has a cast of analogous characters: Wm. Huelsman, Bryce Styza, The Bielinski brothers, and a host of smaller fry. I'm not even remotely suggesting these big players do anything untoward. In fact, they are deemed locally to be the leading edge, the engine of growth, the facilitators of much-needed tax revenue. I'm merely noting the way they operate, the way they spin fantasies of upscale, exclusive (exclusive: Is this a word with a few ugly overtones?) residential communities that induce people to move to a contorted version of the good life in ever-more-remote subdivisions.

Places of anomie and alienation where parenting is synonymous with chauffeuring, where kids never go to the park, because mom and dad have a park-like lot. Places where you'd like to be friends with your neighbors, but you know they'll talk behind your back if you have dandelions. Places ever more dependent on the availability of cheap petroleum, ever more likely to foreclose what's left of the agriculture--the culture part--and the farmland we are going to need in the future.

There's always been a lot of money to be made, but developing hasn't always been easy for developers.
When I first came to Milwaukee in 1966, the air was full of shock and gossip and derisive commentary about the spectacular fall from the pinnacle of hubris by Francis Jay Schroedel and his doomed Rainbow Springs development out near Eagle. In the late fifties, early sixties, when he was cooking it up, SE Wisconsin was still in the planning and early construction phase of I-94 to Madison. The farmers way out there still had fairly prosperous dairy operations; they wondered what was going on in this developer's head. And there were few, if any, commuters.

Schroedel got himself pretty far out on a very fragile limb. Mercifully, Schroedel's name is still attached to his successes; few know that the post-war wunderkind of the cradles of the baby boom was the same guy whose big dream is still a nightmare fifty years later.

The highs and crashing lows of Waukesha development surfaced again in 1976 in the person of Bob Nanz, the hotshot of his decade, backed by a couple of bank insiders. There was a clear appearance of winking at a yearlong check kiting scheme by Nanz as he tried to paper over the hemorrhage of cash from his developments with a blizzard of bad checks, kited from one empty account to another. One of the insiders was declared non compos mentis by a compliant judge (saving him from possible indictment), but Nanz went to jail.

But, why indulge in this review of long-forgotten Waukesha developer nightmares?

Because it is coming back. It is not hard to imagine today's mega-developers sleeping less than soundly, waking in cold sweat and tremors from dreams that borrow images of Scrooge waking up to Marley's ghost, warning "Don't get over-extended. Beware the bankers who'll toast your Midas touch with single malt scotch tonight and foreclose in the morning".

So, what leads this blogger to predict the return of gloom and doom?

It's Waukesha's Wall of Pain.
This is a bulletin board in the main lobby of City Hall. Over the years, I've seen as many as five or six public notices there at any given time. Yesterday, I saw 72 of them. Sheriff's auctions to be held on the Courthouse steps. Foreclosed houses all over Waukesha County.

And underneath the legal lingo, the anguish of people who are losing their homes is palpable. None of the notices I read was for a debt of less than $100 thousand. A surprising number were for mortgages-in-default in the range of $370 to $490 thousand. One of them was for a house in my neighborhood. I checked the details on the Assessor's web site when I got home. A couple bought the house for about $168 thousand at the end of 2004. Next month their place will go to the highest bidder. Their present indebtedness on the mortgage: $183 thousand.

For every person, couple, family that is subjected to this, there are probably twenty (or fifty, who knows?) who are on the brink, and hundreds (or thousands, who knows?) living from paycheck to paycheck, knowing a layoff means bankruptcy and forclosure.

Too much house. Too much offered. Too much inflation in the appraisal. Too far from work. Too much mortgaged. Too much fantasized equity taken out and spent through home equity borrowing.

A prediction:
Aurora will not build a Pabst Farms Hospital in Oconomowoc. Comes time to float bonds, the implosion of confidence in growth scenarios and looming chaos in real estate financial markets will send the plans up in smoke. Good thing: the best thing that could happen to Pabst Farms is that it goes back to being farms.
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Of the biblical allotment of three score and ten I have lived only three of them more than a bicycle ride from one of the Great Lakes. I grew up ten blocks from Lake Erie in the (once Irish/Italian ghetto, now newly-hip) "Near West Side" of Cleveland. I can still cycle to the Milwaukee lakefront in an hour and a half; but, a round-trip has always been more than I would (noror ever did) attempt. -0- I'm a "...somewhat combative pacifist and fairly cooperative anarchist," after the example of Grace Paley (1922-2007). -0- I'm always cheerful when I pay my taxes (having refused--when necessary--to pay that portion of them dedicated to war). -0- And I always, always vote.