Assessed Value of New Construction: Lagging the State, But is This the Whole Picture?

by Brian Kennedy and Dr. Patrick Jones

A visual analysis of Trend 2.3.2 Assessed Value of New Construction, might indicate that Spokane County is severely underperforming the state. However, from 2002 to 2018, the compound annual growth rate for the county’s total assessed value of new construction is 4.6% whereas the state average comes in at 4.4%. So what accounts for these mixed signals? As with most trends covering the construction market, the pre- and post-recession trends tell two different stories.

Leading up to The Great Recession, Spokane County was out performing the state. From 2002-2007 the County’s compound annual growth rate was 17.9%, 6.2 percentage points higher than the state rate of 11.8%. This resulted in an assessed value of new construction peak of over one billion dollars in 2007. In the Great Recession and its aftermath, 2008-2011, Spokane’s activity declined at a very quicker pace. By 2011 the assessed value of new construction was just 28% that it had been in 2007, whereas the State fared relatively better, falling to just 38% of the prior peak. Beginning 2012 the state began distance itself from Spokane County. Despite a 14.1% annual growth rate since then, the County has been lagging behind the state by an average of 3.1 percentage points per year.

So while outperforming the state prior to the recession, the county fell harder during the recession, and has had a harder time catching up after the recession. According to Cheryl Stewart, executive director of the Inland Northwest Associated General Contractors, the large build up prior to the recession can partly be attributed to “having more inventory on hand already to use up before we started building more.” She goes on to state that the slower growth post-recession can also be tied to lot availability, “we just don’t have a lot of areas where we can build new homes.”

Kieran Sprague, government affairs director of the Spokane Home Builders Association, goes on to state that “our biggest challenge in creating more housing in Spokane County is not just specific to our region, but is indicative of a larger problem facing all professions in the trades, a lack of labor. With the labor shortage we are experiencing, our builders cannot physically accept a higher workload, even if they would like to.”

While the assessed value seems to be telling us we are falling behind, Spokane County is still building a high rate. According to the Department of Revenue, in 2018, Spokane County added 9,263 new construction parcels of real property to the tax roll. Only one other county added more, King County, which comes as no surprise. However, in terms of new construction parcels as a share of all real property, Spokane ranks 6th across all counties at 4.56%. This is 2 percentage points higher than King County, ranking 17th. Places like the Tri-Cities are adding new parcels at the highest rate: Franklin leading all counties in the state with Benton ranking 4th.

Despite the quickening pace of building here, the assessed value per capita is still far lower than that of the state. Ms. Stewart attributes this in part to the makeup of our new construction. “We saw a lot of industrial and warehouse construction, which would typically have a lower assessed value that office or retail compared to the Tri-Cities, for example, that saw a lot of retail and medical construction.”

So what can the data tell us about moving forward? Kieran states that “considering the labor shortages in the trades and residential permitting staying stable, new construction should stay pretty consistent over the next few years, barring an economic crisis.” However, he notes, “construction is a volatile industry,” and this is obvious in the trend line with its high peaks and low troughs.

One thing is certain, while our values might not rival the state benchmarks, Spokane’s new construction is noticeable. With the completion of the Amazon project in the West Planes, Katerra in the Valley, Avista in the University District, and Greenstone about to break ground on the South Hill, Spokane is building.