Property Taxes and Home Affordability in Florida.

Median Home Price in 1980 - $75,000Median Home Price in 2005 - $372,000Median Family Income in 1980 in Florida = $ 21,355Median Family Income in 2005 in Florida (estimated) = $60,000Increase of Median Family income in the same period = 181%Increase of Median Home Price between 1980 and 2006 = 396%Note: These figures have not been completely certified. They have been taken from different sources, and could reflect some inaccuracy. They are used to graphically explain a tendency, and only in this context, will they serve the purpose of this essay.

Average property tax for new buyer (including Homestead exemption) in 1980: $ 850Average property tax for new buyer (including Homestead exemption) in 2005: $5,899(Approximate figures)Homestead exemption grants a $ 25,000 deduction for homeowners who qualify and register with their county appraiser. $36,588 yearly income Minimum Yearly Income, as per FNMA guidelines, necessary to cover Median Home purchase in 1980; assuming 90% financing @ 12.5% annual interest, 1% insurance rates, (PITI= $854) - Note the very high interest rates prevailing in the 80’s.

PITI = Principal + Interest + Taxes + Insurance $134,086 yearly income Minimum Yearly Income as per FNMA guidelines, necessary to cover Median Home purchase in 2005; assuming a 90% financing @ 6.5% annual interest, 1% insurance rates, (PITI=$3,152)Roughly, FNMA guidelines require that a maximum of 28% can be dedicated by a homeowner to pay for his monthly PITI (principal + interest of the mortgage, plus taxes, plus insurance). To be noted that the decrease in affordability is occurring notwithstanding mortgage rates in 2005 are half of what they were in 1980.

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%This is a direct consequence of the decrease of 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 dedicated to Home Property Tax – 1980 = 4%Percentage of Median Family income dedicated to Home Property Tax – 2006 = 9,83%However, this increase is only valid for new buyers in this market. The “Save-our- Homes”Tax break unfairly burdens new buyers, vacational home owners and investors, and protects “Old Homestead Owners” who are limited to a 3% annual increase in their property taxes.

Fact: Even though Median Home Values have increased proportionally more than double the Median Family Income, and substantially increased the tax base, most cities in Florida have found their way to increase the City Tax Rate, further aggravating the cost of owning a property in Florida. Let’s pray and hope that our conclusions won’t send the following messages:

To “old homeowners” in Florida: Don’t ever, ever move from your house or condo. You will be punished by an unsustainable raise in property taxes, even if you downgrade to a smaller and more “affordable” home. Don’t try to add space, build or remodel. Every added square foot will be taxed at the full market value, because it wouldn’t be covered by the “save our home” exemption. You would be surprised by how much it could raise your tax bill. To Owners of second homes or vacation homes in Florida: Congratulations, your equity 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 then 10 years ago; while you are not taking advantage of schools and other infrastructure designed for permanent residents, you are paying the highest bills. Conclusion: “...Sell”.

To Investors who have held 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. You have tried to raise the rents you collect to cover your rising costs, but you haven’t been able to keep up to tax and maintenance fees increases. The fact is that renters cannot afford to pay a rent that would make sense for your investment. To Investors who bought recently. Good luck. You have paid the high price. Your property taxes are high and relentlessly increasing. Your rents barely cover your taxes, maintenance fees and the smallest part of your monthly mortgage payments. The message: “cut your losses, sell and run”. But this is the sticky situation of thousands of other “lucky” investors. Otherwise, just try to rent it, take a monthly loss and hope for the best.

To New Homebuyers. 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. Meanwhile, just clench your teeth, take the hit and hold on. To Renters. You are already experiencing a strong pressure on rent and it will persist for some time. Your “American dream of homeownership” is being crushed and is almost unattainable now, but what you are paying in rent is almost a bargain. But expect progressive and unavoidable raises. To Local Governments: You have been running wild with our dollars. You are fat and rich but you won’t give up, you keep wasting our money and you keep increasing our taxes, and today you are the only beneficiary of the real estate mayhem that is threatening our state. What about some legislature-mandated spending limits?Correcting the problem:

Whoever is now a beneficiary of the “save our homes” taxation shouldn’t accept any intent to take away this privilege. After all, 3% cumulative annual increase (as allowed by the “save our homes” rules) is more than fair. Cost of living has not on average increased more than this percentage during the last 10 or 15 years. So, why accept to be taxed on hypothetical sales value of your home by greedy local government? After all, they have not increased their services in any way to justify three and four times larger tax bills, and their expenses should have increased at the same rate as the national inflation rate. Unless they have chosen to mask their inefficiency at taxpayers’ expense. To the contrary, we can even argue that the mushrooming new constructions have already increased their tax base in such way that a reduction of their tax rates could have been considered. Legislators should better consider new regulation to transfer these “save our homes” advantages, when switching properties of the same of lesser values. This would surely reactivate the real estate market.

On the other hand, assessment of present property taxes, should be the object of a serious analysis in order to place them back at their historical levels, as a reasonable proportion of median family incomes, as opposed to the present almost confiscatory levels. I am talking about reduction of tax bills. The present real estate recession is not due to circumstantial or accidental factors. There are deep economical reasons which can and should be corrected. Affordability of homes is part of our government’s responsibility and should be addressed accordingly. Unfair and abusive property taxes are one known issue and voters should put pressure on their representatives to correct it. We are not talking about a tax revolt. It is a fact, though, that local governments have done nothing to help the first time home buyer, confronted with disproportionate real estate price increases. To the contrary, they have aggravated the problem by closing their eyes on the tax property issue, which enriches their coffers at the expense of a battered middle class. Disclaimer: This article represents the personal opinions of the writer and are not related to any firm, association or business with which this writer maintains any kind of relationship.