Real Estate News: Spring 2007
Crist guarantees better insurance rate cuts
TALLAHASSEE, Fla. – March 22, 2007 – Gov. Charlie Crist reassured Floridians yesterday that the state would not accept the smaller-than-expected insurance rate cuts announced by most carriers. He made the comments at a Tallahassee political gathering of South Florida political and business leaders.
“You need relief, and we know it and we feel it,” Crist says. “Don’t believe your rates aren’t going to go down as much as we would like. They are. I guarantee it. They’re going to keep going down.”
Florida Insurance Commissioner Kevin McCarty had earlier estimated an average 24 percent drop in insurance rates statewide, but most carriers, notably the larger ones, requested rate drops in the single digits. Florida’s largest, State Farm Florida Insurance Co., requested 7 percent; Allstate Floridian Insurance Co., 14 percent, Nationwide Insurance Co. of Florida, 4.6 percent; and USAA, 3.1 percent.
According to Crist, he met with Insurance Commissioner Kevin McCarty after the insurers filed their rate change requests. “What’s up with the filings? Some of them are minuscule, some of them are 34 percent – which we like – in reductions.” Crist says. “McCarty’s response was, ‘Well, that doesn’t mean we have to accept their nominal reduction, Governor.’ I said, ‘God I love you.’”
GOP: Let county voters pick taxes
TALLAHASSEE, Fla. – March 22, 2007 – House Republican leaders have sweetened their pitch to replace property taxes with an increase in sales taxes: Give homeowners the choice of higher sales taxes in their county in exchange for having their property tax bills disappear.
The proposal is part of a new version of the tax overhaul being pushed by House leaders. Along with the choice comes this bottom line: If voters agree to swap local sales taxes for property taxes, they’ll pay no more property taxes. If they don’t agree, they’ll pay an average of 45 percent less in property taxes beginning in the 2008 tax year.
The new plan would still raise sales taxes statewide, but only by a penny, not the previously proposed 2 1⁄2 cents. But the plan would let counties raise local sales taxes by as much as 1 1⁄2 cents more – if local voters approve – to make up for major cutbacks on property taxes. The measure would force local governments to cut $5.5 billion statewide by 2008.
“There isn’t a one-size-fits-all solution,” said House Speaker Marco Rubio, who spoke with reporters Wednesday about the new version. “We produced a basic concept of sales tax in lieu of property tax; we figured out the shortcomings and we addressed it.”
Among the problems House leaders want to fix: Complaints by large counties that the original proposal of raising sales taxes statewide might send money raised in one county to another smaller, poorer county.
The new proposal also softens the blow to local governments, forcing them to reduce tax collections based on the 2003-04 budget year, rather than going back to 2000-01, which would mandate deeper cuts.
By giving voters the option of raising their local sales taxes – and having counties distribute the money to their cities based on existing formulas –lawmakers resolve the problem of having to distribute the money, said Rep. Ray Sansom, a Destin Republican and head of the House property tax effort.
House Democratic Leader Dan Gelber said he was encouraged that House Republicans have shown a willingness to modify their plan to fix weaknesses, but he has some questions.
“I’m not convinced the numbers add up,” he said. “I think it’s clear we’re still at the drawing board with these plans.” The new House Republican plan, which will be voted on in the House Policy and Budget Committee on Friday, would still require a constitutional amendment, which would have to be approved by 66 percent of voters. It would work this way:
- Local spending: Local governments would be forced to cut their budgets an estimated $5.5 billion in 2008, and property taxes would have to be rolled back based on the 2003-04 budget year. Hospital taxing districts, children’s services councils and poorer counties would be exempted from the rollback. Counties could exceed revenue caps only by a unanimous vote of their commissions. In the future, spending would be capped based on the consumer price index.
- School taxes: Homestead property owners would see the portion of their property taxes that pay for schools disappear – a savings of as much as 40 percent for owners of most primary homes. The state would replace that money by raising the state sales tax one cent and distributing the $3.9 billion collected to all 67 counties, based on the existing school funding formula. Owners of commercial and non-homestead property would continue to pay property taxes for schools, but the tax bill would shrink because of the rollbacks.
- Optional school taxes: Counties can now levy a separate tax that goes to schools. Under the new plan, counties would have until 2010 to ask voters to that tax with a half-cent increase in the local sales tax.
- Local taxes: Counties would have until 2010 to ask voters to eliminate all property taxes on primary homes and replace the money with a one-cent increase in the local sales tax.
- Rental property: Counties could be required to pass on tax relief to owners of rental property, though there is no requirement that the savings be passed on to renters.
- Businesses: Commercial-property owners would receive a tax break of $25,000 of tangible personal property paid on certain equipment, such as shelving.
The latest proposal is a variation of a plan first promoted by Republican House leaders three weeks ago, but this is the first time it has been offered as formal legislation.
Rubio has faced resistance from some Republicans, who worry about the wisdom of voting for a tax increase. On Wednesday, Sen. Mike Haridopolos, who is leading the property tax effort in the Senate, said the general House idea of replacing property taxes with sales taxes “doesn’t have the support necessary to carry the day.”
Haridopolos said Senate leaders are taking their time to release their proposal because they want to understand the impact a rollback in government revenue will have.
House Democrats have proposed their own alternative, attempting to give selective property tax relief to lower- and middle-class homeowners.
Gelber said that the new plan would give the richest 65,000 homes in the state – those valued at $1 million or more – more than $1.5 billion in tax cuts.
UF study: The price is right, so buy now
GAINESVILLE, Fla. – March 9, 2007 – Hopeful homebuyers in Florida should act now: The price is right as the state’s single-family residential housing market bottoms out, according to a University of Florida study released today.
“If you’re thinking of buying a house, there’s probably not much to be gained by holding out at this point,” says Wayne Archer, director of UF’s Bergstrom Center for Real Estate Studies. “It doesn’t look like prices are going to fall anymore.”
The quarterly survey of experts in the real estate industry completed in January shows that the share of respondents observing a drop in single-family housing prices has dipped, while a growing number find prices staying even with inflation, Archer says.
“We see that as a benchmark,” he says. “When prices maintain the same level as inflation, then we’re probably in some kind of equilibrium. It indicates the market is stabilizing.”
The exception is condominiums, which are overbuilt and prone to speculative and naïve investors, he says. This is the first time in the UF survey’s five-quarter history that the buyers’ investment outlook for residential development has brightened. It declined for the first three surveys and remained flat for the fourth survey at the end of October, starting to rise only in this latest survey.
Because of the dominance of single-family housing, the findings have far-reaching and potentially optimistic implications for the state’s real estate industry, Archer says.
“You can’t get away from the fact that the single-family housing market is the single largest driver of the real estate market,” he says. “Most brokers and real estate agents are dealing with single-family housing. Most lending is for single-family housing. And single-family housing drives home furnishings. So when it stabilizes, that’s important.”
One possible explanation for the housing market turning the corner is a restricted supply of land for residential development, Archer says. The shortage meant there was less overbuilding than there might otherwise have been, he says.
Condos did not have this land restraint, which is one reason they are overbuilt, Archer says. At the same time, condos are prone to strong speculative swings because they are considered a relatively easy commodity to exchange; it’s not difficult to acquire them in multiple units or to buy contracts on them, he says.
The stabilization of the single-family housing market came earlier than anticipated and is not expected to affect all parts of the state equally, Archer says. The quieter markets likely will take longer to rebound than those in Central and South Florida, where growth has been explosive.
Jacksonville typically has been a slower and steadier market than Orlando, Tampa-St. Petersburg, Miami and other cities in South Florida, but that is changing, Archer says. Recently, the Jacksonville housing market has picked up momentum.
Even with a turnaround, Archer says he does not believe Florida’s real estate market is likely to reach the same level that it did at its peak in 2005-06. “I don’t think any thoughtful person would expect sales to go back to where they were a year or so ago,” he says. “That was probably an overheated condition and it was extraordinary.”
On a positive note, nearly all other markets, including apartments and commercial rental markets, appear to be remaining steady or even experiencing robust growth. “They did not experience a downturn in the same sense that the single-family development market did and they’re continuing to be strong,” Archer says.
Optimism about Florida real estate seems to be particularly apparent among foreign investors. Many respondents commented that foreign investors and lenders are aggressively trying to invest more capital in the state’s rental markets.
“They apparently have no fears about the future of these markets, despite what we perceive as our problems with hurricanes, taxes and other concerns,” Archer says.
For the survey, UF’s Survey Research Center asked a series of questions of 318 industry executives, real estate lawyers, market analysts, title insurers, financial advisers, market research economists, real estate scholars and other experts in the field, an increase over the 183 respondents in the last survey.
State House leaders fast-track bill to reduce property taxes
TALLAHASSEE, Fla. – March 8, 2007 – In a rush to show that lawmakers are serious about cutting property taxes, a House council passed a controversial bill Wednesday to sharply roll back local taxes, which would save property owners statewide as much as $5.8 billion.
The House Efficiency and Accountability Council ignored repeated calls from Democrats to slow down the debate and voted 10-5 along party lines for a measure to force counties to roll back local taxes to where they were in fiscal year 2000-01, plus an additional amount to account for population growth and inflation.
As Florida’s counties warned of “Draconian choices” they would have to make and Democrats complained of being railroaded, the discord put a quick end to the bipartisan harmony that House leaders said would mark the 60-day session that began Tuesday.
None of that mattered to House Republicans, who have adopted House Speaker Marco Rubio’s urging to “be a little impatient” about moving ahead on a plan, which has just one more committee stop before the full House votes on it.
The tax rollback would be the first step in a two-phase approach House leaders are touting; the second is a constitutional amendment to do away with all taxes on homesteaded property and replace them with a 2 1⁄2-cent hike in the statewide sales tax.
The proposed rollback would save taxpayers in Miami-Dade an estimated 35 percent on their county taxes. The hit to the county: between $613 million and $725 million. The savings to taxpayers in Broward: 22 percent. The hit to Broward coffers: at least $198 million.
“Counties must decide with this bill whether we’re going to fund libraries, the softball player at the recreational park, the child in the burning attic, the grandfather who has a heart attack, or the woman who has a burglar at her door,” Sarah Bleakley, a lobbyist for the Florida Association of Counties, told lawmakers. “Which one of those programs do you all think are frills?”
In Miami-Dade, county officials say $5.2 billion of their $7 billion budget is spending required by state and federal law, airport or port services contracts, or is being used to pay back debt. An additional $1.3 billion goes to county medical examiners, police patrols, jails and juvenile justice, the county health trust and elections offices.
“That leaves $500 million of expenses that someone says you don’t have to do,” said Jennifer Glazer-Moon, the county budget director. “But that includes the administration of the county, the parks department, human services department and cultural programs.”
Broward County Commissioner Ilene Lieberman told the House committee that county officials agree Florida’s “archaic” tax structure needs an overhaul, “but we disagree this is the right fix.”
“You want to be careful as you’re pushing on one side you’re not creating a bigger bulge on the other side,” she said. She warned that Broward and other counties could be forced to start charging user fees for, say, borrowing books at the library.
Rep. Julio Robaina, a Miami Republican, said he felt no sympathy for county governments, blasting Miami-Dade County for squandering millions over the years. He predicted the rollback will “make the county commissioners more than ever vigilant over every dollar.”
Council Chairman Rep. Andy Gardiner of Orlando noted that the proposal allows counties to get around the rollback by a two-thirds vote of the county commission. “So if there are concerns about ‘Draconian cuts’ or cutting police departments or softball players, can’t they go out, discuss that in a community and by a two-thirds vote override essentially what we’re asking them to do?” he said.
Who benefits
Owners of homesteaded property would see the smallest decline in their property taxes – $433 million across the state. Owners of second homes and other residential real estate, who have shouldered a larger share of the tax burden in recent years, would reap $767 million in savings, while business properties would see the greatest savings – $3.35 billion.
But Democrats complained that the fast pace of the bill’s progress, coupled by the short notice they were given to prepare for the vote, has forced lawmakers to vote on a measure even though they have no clear idea how their local governments will handle it.
By contrast, the Senate is taking its time on property taxes. As of Wednesday, senators had not yet come up with their own plan.
Criticism
Rep. Dan Gelber, the House Democratic leader from Miami Beach, noted that his city would be among the hardest hit in the state – a 51 percent cut in its tax rolls and budget. Because the city has paid for its growth, rather than resorted to issuing bonds, the House scheme blindly penalizes the city for being responsible, he said.
“We are about to make the biggest decision we’ve ever made in the dark,” he said. “One thing we will not do is cede this incredibly important issue to rank politics.” The discord on the session’s second day wasn’t the first sign that party differences would dominate the debate.
The Florida GOP has launched a website touting the House’s tax plan and promoting the constitutional amendment. Rubio and his top deputies have sent out e-mails urging Republicans across the state to click on www.nomoreproperty tax.com.
Among the information on the site, it calls the governor’s proposed solution – doubling the homestead exemption – a “band-aid” approach to the problem. Republican Party spokesman Jeff Sadosky defended the website, even though Senate Republicans have not endorsed the House proposal.
“What the party is endorsing is getting the issue out there,” he said.
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