If your home is worth $200,000 or less, it likely isn’t the type of home city officials want built in Greenwood in the future.
The reason: How much residents would pay in taxes.
City officials have had a focus recently on looking to attract, and in some cases require, higher priced homes in Greenwood. One of their reasons is the desire to have homes that collect enough in property taxes, based on their value, that they will pay for the services they require, such as police and fire protection.
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According to a study by one of the chambers of commerce, new homes would need to be valued at about $250,000 or more in order for that to be true, Mayor Mark Myers has said.
That was one of the reasons why city council members considered rezoning certain properties that are prime or planned for development to require larger lot sizes, and higher valued homes.
Another is because Greenwood has enough starter homes, with lower prices, and Myers is hearing from company executives that they want to be able to find higher-end, higher priced homes here, Myers said.
“Greenwood has plenty of starter homes, in fact, we have an abundance of starter homes,” he said.
Greenwood isn’t the only community that has been making this push.
In Hamilton County communities, such as Noblesville and Fishers, officials have also been searching for the home value that allows them to break even between the taxes collected and the services provided, which has been estimated to be between $250,000 to $450,000. Officials agree that building homes valued at less than $200,000 aren’t worthwhile.
And some have pushed for new requirements to try to bring in homes with higher values. For example, Noblesville recently approved new architectural requirements that don’t allow vinyl siding on homes. Greenwood has also been approving new development standards for key areas, such as around the new Worthsville Road interchange, that don’t allow vinyl siding.
Their goal is to offer more higher-priced homes as options for buyers who want to live in Greenwood, and that can bring in more in taxes to pay for services, officials have said.
Trying to find that break-even point between the cost of services and revenue is admirable, especially when considering future development in a community, said Larry DeBoer, a Purdue University professor and expert on local taxes.
“So often, folks focus on the additional revenue, without thinking of the additional costs,” DeBoer said.
The problem is that the break-even point depends on multiple factors, and is difficult — if not impossible — to find, he said.
Between services at city hall, courts, police, fire and parks, the cost of services for each of the more than 20,800 homes in Greenwood would be $1,115, but if you only include the percent that property taxes pay, the amount would be $513 per home, DeBoer said. In order to cover that amount, the home’s value would either need to be $164,000 or more, or $298,000 or more.
But that doesn’t consider whether that home would actually pay that amount once you factor in other tax rates, such as for schools and libraries, and tax caps, which limit homeowners bills to 1 percent of their value, he said. For example, if a home cost $298,000 and was in the Greenwood school district, the total tax bill would be $3,250, but would be capped at $2,980. And for a $164,000 home in the Clark-Pleasant school district, the bill would be $2,268, but the bill would be capped at $1,640.
In both examples, city government would not be able to collect the full amount that would be needed to cover all city services, DeBoer said.
“It doesn’t matter how expensive the house is, you can’t get to break-even,” he said.
The numbers also don’t consider several other factors, such as industrial, retail and agricultural taxpayers and other taxes those homeowners would pay.
Other property owners also pay taxes and local governments don’t only get revenue from property taxes because they also collect money from income, sales, fuel and other taxes.
Past studies have found that businesses often provide more revenue than they require in services since they often pay more in taxes than homes, he said.
But in many cases, those businesses likely also require more services than a home would, he said. For example, a fire department likely wouldn’t need a hazardous materials team or a high-extension ladder to only serve homes, he said.
So that could mean that a home should pay less because they require less costly services, he said.
But, since significantly more homes are being built in Greenwood compared to businesses being built, that makes it more important for those homes to be self-sustaining, Myers said. For example, in December, two times more building permits were issued for homes, compared to businesses, he said.
“The number of homes we have coming in versus the number of businesses coming in is insurmountable,” Myers said.
The break-even point also doesn’t consider other factors, such as the other taxes residents pay, that they could attract new businesses to the area to serve them, which would bring in more taxes, and that growth from that neighborhood could require added services, DeBoer said.
The numbers only factor in what expenses are now for those local governments, DeBoer said. As growth continues, the school district could need to add a new school or the city could need to add a new fire station or additional infrastructure, such as sewers or roads, and that would make the cost of services for those homes significantly higher.
Here is a look at how much a Greenwood home would need to be worth to pay for the services required:
Number of homes: 20,807
Service costs per home: $1,115
Home value to cover that bill: $298,000 or more
Service costs per home paid by property taxes: $513
Home value to cover that bill: $164,000 or more