We’ve reported plenty that the housing market is cooling off — home sales are down 24% year over year, according to the National Association of Realtors, a Marketplace underwriter. And while prices haven’t plunged, some markets are seeing a downturn.

A slowing property market could affect local governments, especially cities, which typically depend on property-related taxes as their biggest source of revenue. Seattle recently had to redraw its budget after forecasting a $27 million drop in revenues from one real estate tax.

Let’s start with San Francisco. For now, the city is in OK financial shape.  

“Like a lot of places, we were hit by the pandemic, but we had a lot of support, particularly from the state and federal government,” said Ted Egan, the city’s chief economist. 

But that support is running out. Plus, home sales are down 26% since last year and the office, with a Golden Gate view less valuable than it used to be. ​“We’re increasingly worried about what revenue looks like in the near future,” Egan said.

San Francisco does have other revenue sources that can help, like sales taxes and business taxes.

But that’s not the case for many cities, including those that are vulnerable to a housing boom hangover.  

Farhad Omeyr at the National League of Cities points to Boise, Idaho.  

“They’ve been thriving these past couple years because they rely on property taxes, but now they will actually feel the heat more than other governments,” Omeyr said.

And since the property tax assessment and appeals process can take awhile, the shoe that is the office market is just starting to drop on local governments, said Joan Youngman at the Lincoln Institute of Land Policy.  

“The change in work from home and work from office, what will be the long-term impact?” Youngman said. “It’s not clear where things will settle, where a new normal will be.”

Housing shouldn’t plunge as much as it did during the Great Recession, and cities have become a lot more disciplined with their budgets over the last decade.  

But inflation is making those budgets less affordable, said Richard Auxier with the Tax Policy Center.  

“State and local governments don’t just tax things, they pay for things,” Auxier said. “So what they need to be paying is also going up.”

And it’s not like you can get a Black Friday deal on teachers or cops.