The decline in the economy of Massachusetts has also been spearheaded by the United States economy that is on the verge of recovery after the adverse effects financial, global crisis. The decline in the Massachusetts economy and housing market had various effects.
The current rate of unemployment is remarkably, leading to the decline in the demand of goods due to the decrease purchasing power for goods and services. In the theory of demand and supply, decrease in the demand for goods and services lowers the prices thereby decreasing profits. Decrease in the profits impacts the economy negatively as to the revenue generated to the government in terms of corporate taxes diminishes. This decreases the rate of economic growth further.
The unions will start to demand more salaries to cater for the increase in the taxation. Employers will transfer the increase in the cost of production as the result of wage increment to the final consumer by increasing prices of goods and services. The consumer will have no choice but set up more money for consumption, thereby reduction their saving (Laperriere).
The state of Boston raised residential and business property taxes from 7.6 to 12.79% 5.6 to 31.04% respectively due to low economy and cuts in the state aid. Also, the Federal Reserve stopped buying mortgage-backed securities. Mortgages prices will increase due to this taxation, and because there is low demand as a result of high unemployment, housing market growth will reduce. This will impact negatively the demand for the construction equipments and their complementary goods, causing its reduction in prices. Property development companies will have no alternative but to lay down some of its employees to cut their cost due to decrease demand for housing and profits (Mamtell). New or unstable mortgage, property development companies will have to close down their businesses, merge or diversify to other business ventures by using the opportunity cost. To stay in business, these companies will reduce property prices by cutting down their costs that is. They will cut staff salaries and use materials of low quality that cost less.
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The interrelation of economic variables such that change in one variable of one has multiplying effects on other variables. The taxes on property taxes have to be reduced; employment to be increased and this will bring down property prices raising demand.
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