Annexation of Cordova, Tennessee, by Memphis: Sale Price Trends from Repeat-Sale Indexes

By Evans, Richard D.; Kolbe, Phillip T. et al. | Business Perspectives, Summer 2007 | Go to article overview

Annexation of Cordova, Tennessee, by Memphis: Sale Price Trends from Repeat-Sale Indexes


Evans, Richard D., Kolbe, Phillip T., Sphar, Ronald W., Gnuschke, John E., Hanson, Ryan B., Business Perspectives


Introduction

This article addresses the array of benefit and cost factors that should be considered when, as part of its growth policy, a city considers the annexation of adjacent or nearby unincorporated areas. Apparently, city officials compare the projected schedule of added tax revenues to the added costs of an assortment of new required services. However, residents of an annexed area may vehemently express an alternative benefit/cost analysis as the annexation's effect on their home values and lifestyles. This issue will be addressed by assessing the effects of annexation on single-family residential housing prices and appreciation rates in Cordova, a more affluent Shelby County suburb annexed by the City of Memphis, Tennessee.

Many who originally located outside the city limits chose to trade off longer commutes to work for lower property tax rates and lower land prices. These homeowners may express decreased sensitivity to indicators of lower public services, such as longer response times for emergency services. Many may see high crime statistics for a large city as applying to only the city and not to areas that are a few thousand yards outside the city limits. In the case of Memphis and the unincorporated area known for more than a hundred years as Cordova, residents may attribute higher quality to local public schools that are managed by the predominantly Caucasian Shelby County School System, rather than to the overwhelmingly African-American Memphis City Public School System.

In the case of Memphis' annexation of one part of Cordova, the owner of a $250,000 house would have seen annual taxes almost double from only the Shelby County property tax ($2,368.75 on December 31, 2002, to $4,371.25 on January 1, 2003--the sum of Memphis City property taxes and Shelby County taxes). The effective tax rate would have changed from $0.009475 to $0.017485 per dollar of market value.

Map 1 shows that Cordova is bounded on the east by the county line, on the south by incorporated cities--Germantown and Collierville and their annexation reserves--on the north by incorporated cities--Bartlett, Arlington, and Lake-land and their annexation reserves--and on the west by Memphis. The Cordova area is now either all in Memphis or in the Memphis annexation reserve. The area enjoyed great residential growth after 1980. Roads such as Germantown Road went from two-lane, tree-canopied thoroughfares in the early 1980s to eight-lane arteries by 2000.

The purpose of this article is to show the result of the measurement of price trends for single-family houses in the Cordova area from 1991 through 2006. The annexations of 2002 provide an event study opportunity to evaluate price trends in three mutually-exclusive areas. By 2002, part of Cordova had already been in Memphis for more than a decade. This sub-sample is labeled "Cordova 1990 Annexation Area"; but one area was annexed in 1977, while another area was annexed in 1990. A second subsample, "Cordova 2002 Annexation Area;' is made up of houses annexed in 2002 (one area was annexed effective April 30, 2002, and another area was annexed effective December 31, 2002). Both areas were assessed higher taxes effective January 1, 2003, but the transition to City of Memphis services and schools did not coincide with this higher assessment. A third mutually-exclusive subsample, labeled "Cordova Memphis Annexation Reserve," contains houses that were in the Cordova area but were never annexed during the time period covered in this article. Two separate parts of this subsample were annexed on December 31, 2006, and owed higher taxes beginning in 2007. Map 2 shows Cordova's annexation areas.

A reasonable research anticipation would be that an area with higher taxes over the entire sample period would have a different time trend for prices than was seen for the subsample that had low taxes over the same years. Both would have different price trends than for the area that experienced changes in taxes, changes in services, and changes in school districts. …

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