Madison’s average home value leaps 12.4% to a record $376,900 | Local Government

The last time the average home value increased by 12% was in 1994, while the $784.2 million in new construction broke the record of $750 million in 2018, City Assessor Michelle Drea said.

“It’s an indication of strength of the local and regional economy and a thriving housing market,” city finance director David Schmiedicke said.

The striking rise in housing values came despite a cautious approach to assessments over concerns of a housing market bubble due to high demand for homes and low supply, Drea said.

“Bubble markets are not based on real estate fundamentals,” she said. “They are a response to unique situations and motivations.

“As such, my office has been cautious in evaluating sales data and applying it to the market,” she said. “Practically speaking, if a sale price was dramatically different from assessed value we were thoughtful and careful in evaluating the sale, and did not apply those with a high disparity in delivering an overall trend.”

Mayor Satya Rhodes-Conway was encouraged by the new values, but added a caveat.

“The pace of development demonstrates a thriving market,” she said. “However, the continued lack of housing supply impacts the market.”

The new assessments, based on sales and other data from 2021 and released Friday, show a 10.9% jump for all real estate, far above the 5.9% increase last year and the highest rise since an 11.3% increase in 2001.

The value of commercial property, which includes everything from multi-unit apartment buildings to hotels, office and retail buildings, leapt 14.9% and was driven largely by sales results in all those markets, Drea said. The value of commercial property rose 4.3% for 2021, down from 8.6% two years ago.

Residential assessments, including single-family homes, condos and two- and three-unit apartments, rose 12.8%, compared to 6.7% last year.

The 12.4% jump for the average single-family home doubles the increase of 6.3% last year and is well above the 4.9% and 5.7% the two previous years. In the late 2000s and early 2010s, average single-family home values dropped five straight years in the wake of the Great Recession.

The record $784.2 million in new construction far exceeds the $509 million last year, $622 million two years ago and the former record $750 million for 2018.

New values serve as the basis for tax collections.

The 10.9% rise in real estate values includes the $784.2 million in new construction and $2.73 billion in revaluations, compared to $1.6 billion in revaluations last year.

The construction boom was likely influenced by pandemic-delayed projects moving forward, an infusion of federal infrastructure money, the city’s perennial attractiveness for investment, and the city’s geographic expansion, Drea said. The revaluations are driven by a high volume of sales, she said.

The volume of new construction is critical because tight state revenue limits restrict how much the city can increase tax collections to the amount generated by net growth, which is the value of new buildings, additions and remodeling minus the value of demolished properties.

This level of new construction value will allow an estimated levy increase of 2.4%, or about $3.8 million, for operating purposes in the 2023 budget, Schmiedicke said. Last year, growth allowed a 1.5% increase of $2.4 million.

It’s too early, however, to know what the new values may mean for individual tax bills. That will become clear in late fall when the City Council approves a budget for 2023.

The growth in property value does not necessarily mean an increase in property taxes. The growth in tax collections for all jurisdictions is limited under state law and is expected to be much lower than the increase in property values, Schmiedicke said. The higher values will result in a lower tax rate, while state aid and tax credits will also influence property tax bills, he said.

For example, the value of the average home in Madison increased by 6.4% last year, from $315,200 to $335,200, but taxes for all jurisdictions on the average home rose only 1.9%, from $7,641 to $7,817, before state tax credits were applied, Schmiedicke said. After applying state credits, taxes from all jurisdictions on that average home increased only 0.12%, he said.

One type of commercial property — apartment buildings between four and 50 units — showed increases between 9.5% and 31.7%, while those with more than 50 units rose by a robust 20.5%, nearly triple last year’s percentage.

“There’s a dearth of options,” Drea said. “It’s lucrative right now.”

The increases for other commercial properties — hotels, stores, offices, bars and restaurants — ran across the board, Drea said. “We had a ton of sales,” she said.

Hotels, where the property value is tied to the performance of the business, along with stores and restaurants all rose in value by about 10%, Drea said.

While hotel values did increase, they have not returned to pre-pandemic levels, she said. Last year, hotels dropped in value by 15% to 25%.

Offices lagged a bit, with values rising a still-healthy 5%, Drea said. When the COVID-19 pandemic hit and offices emptied, many predicted a drop in values. But many owners have long-term leases that protect values, at least for the near term, she said.

Changes for average single-family homes in neighborhoods ranged from a 28.8% jump from $197,900 to $254,800 in the Southeast Blooming Grove attachment on the Far East Side to a 5% rise from $791,800 to $831,700 in the Highlands-Skyland area on the Far West Side. All told, 100 of 125 geographic areas in the city showed double-digit increases, while none saw a decrease.

In addition, the city saw increases in the average value of condominiums of 11.2%, almost double that of 2021, and an increase for two-unit and three-unit apartments of 12.3% and 8.2%, roughly similar to last year’s changes.

“The relative dearth of housing inventory compared with demand is, in my view, impacting development and cost for all types of real estate providing housing,” Drea said. Meanwhile, “with telecommuting being widely available, there is a narrative that folks from the coasts are resettling here at a high pace due to a high quality of life and lower cost of living.”

Again, the city’s priciest homes were in Spring Harbor on Lake Mendota, where the average value rose 15.4% to $1.35 million. Lakeshore homes on the Isthmus rose an average 16.9% to $1.07 million to become the third area of the city to top average values over $1 million.

The most-affordable homes again were in the Burr Oaks-Lincoln School area on the South Side, where average values rose 22% to $195,400. Only one other area, Bram’s Addition on the South Side, had average homes valued under $200,000. Four years ago, five neighborhoods had values under $150,000.

But there’s another side to rising values.

“Our assessor cautiously applied market data to moderate the impact of a very hot housing market,” Rhodes-Conway said. “This data just further demonstrates our need to build more housing. I am committed to making it easier to build housing, supporting and funding affordable housing, and increasing housing choice in every neighborhood.”

A year ago, Rhodes-Conway unveiled “Housing Forward,” a package of current and planned initiatives that represent the city’s housing agenda. It includes efforts to increase housing choices, create more low-cost housing, combat displacement and segregation, ensure seniors and others can stay in their homes, and combat homelessness.

At the end of 2021, the mayor offered a Housing Forward update that noted 22 actions taken that year, including multiple zoning revisions, increased city investments in low-cost housing, using $22 million in federal COVID-19 relief funding to help prevent evictions, and expanding shelter options for people experiencing homelessness.