Property Taxes and Home Affordability in Florida

A key factor in the current real estate problems in Florida is the affordability of housing. Many other problems exist and can be considered part of normal market fluctuations. However, affordability is invariably the essential element.

Home Price and Family Income Comparisons in 1980 and 2005

Let’s use the Miami-Dade median home price and Florida median household income statistics for this purpose.
Median home price in 1980 – $75,000.

Median home price in 2005 – $372,000.

1989 Median Family Income in Florida = $21,355.

2005 Median Family Income in Florida (estimated) = $60,000.

Increase in Median Family Income in the same period = 181%.

Average house price increase between 1980 and 2006 = 396%.

Note: These figures have not been fully verified. They have been taken from different sources and could reflect some inaccuracy. They are used to graphically explain a trend, and only in this context will they serve the purpose of this essay.

Average property tax for a new buyer (including homestead exemption) in 1980: $850.

Average property tax for a new buyer (including Homestead exemption) in 2005: $5,899. (Approximate figures)

The Homestead Exemption provides a $25,000 deduction on the home’s appraised value for homeowners who qualify and register with their county assessor.

What is Save Our Homes?

In 1992, Florida voters approved an amendment to the Florida constitution that limited the amount of value a family property could increase for tax purposes.
The law limits assessment increases to 3% percent or the consumer price index increase, whichever is less.
Non-family owned property is assessed at full market value annually.

Housing affordability as considered through the FNMA guidelines

A minimum annual income of $36,588, per FNMA guidelines, was needed to cover the purchase of a median home in 1980, assuming 90% financing at 12.5% ​​annual interest, 1 annual insurance rate % (PITI = $854).

Consider the very high interest rates prevailing in the 1980s. (PITI = Principal + Interest + Taxes + Insurance)

$134,086 of minimum annual income per FNMA guidelines was needed to cover the purchase of a median home in 2005; assuming 90% financing at 6.5% annual interest, 1% insurance rates (PITI=$3,152)

Roughly, the basic FNMA guidelines require that no more than 28% of the buyer’s gross income be dedicated to paying their monthly PITI (Principal + Interest + Taxes + Insurance).

Of note is the decline in affordability even though mortgage rates in 2005 were half what they were in 1980.

Impact of Property Taxes Compared to Median Home Value in 1980 and 2005

Property tax for new buyers as a proportion of median home value in 1980 = 1.133%

Property tax for new buyers as a proportion of median home value in 2005 = 1.586%

The burden is due in part to the decline in the homestead exemption as a proportion of home value.

The $25,000 exemption represented 33.3% of the median home value in 1980.

It represented a measly 6.7% in 2005.

Percentage of median family income devoted to homeownership tax in 1980 = 4%

Percentage of median family income devoted to homeownership tax in 2006 = 9.83%

However, this increase is only valid for new buyers in this market. The Tax Exemption Save Our Homes
unfairly burdens new buyers, vacation home owners and investors, and protects former owners by limiting their property taxes to a 3% annual increase.

Fact: Even though median home values ​​have risen more than twice as fast as median household income and substantially increased the tax base, counties and cities, as recipients of property taxes, have found ways to increase your mileage (or tax rate), further compounding the cost of owning property in Florida.

Do we fully understand the message that these irrefutable facts are sending to all parties?

To former Florida homeowners: Never, ever move from your home or condo. You will be punished with an unsustainable increase in property taxes, even if you switch to smaller, more affordable housing.
Do not try to add space, build or remodel. Each additional square foot will be taxed at full market value, as it would not be covered by the Save Our Homes exemption. You’d be surprised how much your tax bill could increase.

To owners of second homes or vacation homes in Florida: Congratulations, your wealth has tripled in the last 10 years. Now, take your money and run. From now on, you are being hit with taxes three or four times higher than 10 years ago; While you’re not taking advantage of schools and other infrastructure designed for permanent residents, you’re paying the higher bills. Conclusion: Sell

To Investors who have maintained their property for more than 5 to 10 years. Congratulations; time to take your profits and find a better investment. Your tax expenses are 3 or 4 times what they were when you bought the property. It has tried to increase the rents it charges to cover its rising costs, but has been unable to keep up with increases in taxes and maintenance fees. The fact is that tenants cannot afford to pay rent that makes sense for their investment.

To investors who bought recently. Good luck. You have paid the high price. Your property taxes are high and rising slowly. Your rents barely cover your taxes, maintenance fees and a small portion of your monthly mortgage payments. The message: cut your losses, sell and run… But this is the plight of thousands of other “lucky” investors. As a last resort, try renting it out, take a monthly loss, and hope for the best.

To new home buyers. Good luck. You are paying the highest prices. You are paying the highest property taxes. Your expectations of a quick valuation of your new home will have to wait for better times. In the meantime, just grit your teeth, take the hit, and hang in there.

To the Tenants. It is already experiencing strong pressure on rental prices and will persist for some time. His American dream of owning a home is being crushed and is now almost unattainable, but what he is paying in rent is almost a bargain. But he expects progressive and inevitable increases.

And the message Floridians are increasingly sending:

To local governments: You have been getting out of control with our dollars. You are fat and rich, but you would not give up; they continue to waste our money and continue to raise our taxes, and today they are the only beneficiaries of the housing chaos that threatens our state. What about some spending limits mandated by the legislature?

Correcting the problem:

Whoever is now a beneficiary of the Save our Homes taxes should not tolerate any attempt to take away this privilege. After all, a 3% cumulative annual increase (as allowed by Save our Homes rules) is more than fair.

The average cost of living hasn’t increased by more than this percentage over the last 10 to 15 years. So why agree to pay taxes on the hypothetical sales value of your homes from a greedy local government? We all know that county and city services have not improved in any way to justify three or four times higher tax bills. Therefore, your expenses should have increased at the same rate as the national inflation rate. Unless they have chosen to mask their inefficiency at the expense of taxpayers.

On the contrary, we can even argue that the multiplying new constructions have already increased their tax base in such a way that the common owner should have expected a reduction in tax rates.
Policymakers should better consider a new regulation to transfer these Save our Homes benefits when homeowners trade lower-value properties of the same home. This would surely reactivate the real estate market.

There is no question that the current level of property taxes must face serious scrutiny to bring them back to their historic levels, as a reasonable proportion of median family income, as opposed to their now almost confiscatory levels. I’m talking about reducing tax bills.

The current real estate recession is not due to circumstantial or accidental factors. There are deep economic reasons that can and must be corrected. Housing affordability is part of our government’s responsibility and must be addressed accordingly.
Unfair and predatory property taxes are a known problem, and voters should push their representatives to fix it.

We are not talking about tentative and timid measures. I heard of a motion to increase the homestead exemption from $25,000 to $50,000. This won’t solve anything. It would simply be a symbolic and political step.

Why a real study of the impact that 25 years of inflation have had to annul the economic and social effect of this exemption? Shouldn’t we reverse it so that it has the same proportion of basic home values ​​as it was originally intended?
Wouldn’t an exemption of $100,000 be closer to reality? Wouldn’t that help the first-time homebuyer achieve the American dream? Wouldn’t that be a real shot in the arm for our real estate market and our economy in general?

Affordable housing for Floridians is an urgent need. There is no question that million dollar homes and condos have contributed to our economy, but will there be any economy left when workers start leaving the state due to unsustainable home values?

The “save our homes” laws have gone some way to protecting some of our homeowners. However, they are an incomplete and unfair arrangement. A full overhaul would be welcome to maintain this protection and also protect new homebuyers, vacation home buyers, and investors from abusive property tax increases.

Of course, the property tax issue isn’t the only element in housing affordability. Interest and financing costs, inflation, wages, construction cost, land value, are also determining factors.

But property taxes are a cumulative burden on the homeowner and will haunt you year after year. It is time for local governments and our legislators to address this issue that is vital to the survival of our battered middle class.

Disclaimer: This article represents the personal views of the writer and is not associated with any company, association, or business with which this writer has any relationship.