Real Estate News: Winter 2006 - 2007
House to ask voters to trade property tax for more sales tax
TALLAHASSEE, Fla. (AP) – Feb. 22, 2007 – Florida voters would be able to abolish property taxes on primary homes and put caps on government revenues in exchange for adopting the nation’s highest statewide sales tax under a plan proposed Wednesday by House Republican leaders. A second part of the proposal is designed to reduce taxes by an average of nearly 20 percent for all property owners, although most of those savings would go to businesses. It would not require voter approval but could go into effect sooner.
House Speaker Marco Rubio, R-Miami, said a proposed constitutional amendment that would raise the statewide sales tax by 2.5 percentage points – from 6 percent to 8.5 percent – could go on the ballot later this year or at the 2008 general election. California has the highest statewide sales tax at 7.25 percent including 1 percent that goes to local governments.
Rubio called the proposal “innovative and bold” and said GOP leaders “didn’t just think outside the box but, quite frankly, built new boxes.”
The amendment would eliminate all property taxes on homesteads – a homeowner’s primary residence. Average savings are estimated at $2,283 per house, but the actual amount would depend upon a home’s current tax value.
Florida’s sales tax increase also would be set aside for local governments, but it would be insufficient to offset losses from the amendment’s tax cap. Cities, counties and other taxing bodies would face a net loss of nearly $5.8 billion annually regardless of which part of the House plan is in effect. That prospect immediately drew opposition.
“They are substituting state government for local government, and it’s been proven years ago that they can’t govern from the state Capitol,” said Polk County Commissioner Bob English. “It’s going to be a disaster. ... I think it’s dumb.” Cities and counties have warned they barely have enough to make their budgets now, and capping how much they can collect could force service cuts. “This is going to have to be a really, really good idea to have to stand up to a political campaign statewide in order to pass,” Rubio acknowledged at a news conference. “We’re comfortable with that.”
Rubio said he believes voters would have to approve the amendment by nearly 67 percent under a constitutional provision that requires a two-thirds vote to impose a new tax. House Democratic Leader Dan Gelber of Miami Beach called the proposal “interesting” and worth looking at.
“But we really do have to look at it carefully because what we don’t want to do is replace one group’s pain with another group’s pain,” Gelber said. Senate Finance and Tax Committee Chairman Mike Haridopolos, R-Indialantic, said the House proposal was intriguing and a bold idea that would add to the Legislature’s tax reform discussion. Senate staffers, though, were still crunching numbers to get a better idea of how it would affect all Floridians, he said.
“We want to be fair,” Haridopolos said, noting the Senate wants to conclude public hearings before making any decisions. Florida Retail Federation President Rick McAllister said the proposal that can be enacted by law was “a reasonable and balanced solution,” but that the amendment needed more evaluation.
AARP state director Lori Parham said the retiree group opposes the idea of putting spending limits in the constitution because that might hamper the ability of the state and local governments to respond to emergencies, terrorism and even new requirements from the federal government.
Parham also questioned linking budget caps to cost increases for consumer items such as housing, transportation and food while major government spending includes a much different shopping list including health care, education and public safety.
Critics also say raising sales tax to lower property tax would hurt the poor who either don’t own real estate or have cheaper homes, yet still have expenses for everyday items that would be taxed at the higher rate. “What would be the tax increase for the people who don’t own homes?” asked Bill Newton, executive director of the Florida Consumer Action Network. “I don’t think this thing really is going to have that much traction in the Senate.”
Rubio rejected that complaint. He said renters indirectly pay property tax through higher rents and noted food and medicine are exempt from sales tax. He argued many renters would be able to buy homes under the proposal because of the tax savings. He also pointed out sales tax is exempt from federal income tax. That exemption is set to expire this year, but Rubio said Florida is an important state that should be able to persuade Congress to continue it.
Taxes still would be paid on vacation or second homes and rental and business property. Those non-homestead properties, though, would see their tax bills decline. That’s because the amendment would roll back taxing rates – except for school districts – to their 2000-01 levels but allow for population- and inflation-based increases. Local government bodies would be able to exceed the resulting caps only by a unanimous vote. School taxes would remain at present levels but future revenues also would be limited according to population growth and inflation.
Commercial property owners could be expected to save an average of $3,353. Landlords and owners of second homes would save an estimated $767 per unit. Lawmakers, though, may require landlords to pass on some or all of those savings to tenants.
The amendment includes a similar rollback and inflation-growth cap on state revenues. The state now is within that cap, so no spending cuts are expected, Rubio said. The Legislature could exceed the cap with a two-thirds vote in each chamber.
The second part of the plan can be adopted by the Legislature. It would be superseded by the amendment if voters approve.
Under the second part, all non-school property taxes, including those paid by homeowners, would be rolled back to 2000-01 with an inflation-growth cap. Estimated average tax savings would be the same as for the amendment for non-homestead properties. Homestead savings, though, would average only $433 – about a fifth of the estimate for the amendment.
Rubio called the proposal a “starting point” aimed at giving Floridians relief from increasing tax bills driven largely by huge increases in property values.
There also has been a shift of tax burden to non-homestead properties due to the Save Our Homes Amendment that already caps increases on primary homes. Both parts of the proposal would also need Senate approval and Gov. Charlie Crist would have veto authority over the statutory measure. His signature wouldn’t be needed to put the amendment before voters.
Crist favors cutting property taxes and has called for lawmakers to move quickly to address the rising cost of owning a home.
“I think that’s what you’re seeing people reacting to, is the literal screaming in many instances that citizens across the state have expressed in regard to their concern about the affordability of Florida,” Crist said.
Housing starts up for second month
WASHINGTON – Jan. 18, 2007 – Home starts are up for December, according to the U.S. Census Bureau and the Department of Housing and Urban Development (HUD), while builders are more optimistic about the future, according to the National Association of Home Builders (NAHB) in yet another sign that the slow housing market may have turned a corner.
Privately-owned housing starts in December were at a seasonally adjusted annual rate of 1,642,000 – 4.5 percent above the revised November estimate of 1,572,000 but 18.0 percent below the December 2005 rate of 2,002,000.
Single-family housing starts in December were at a rate of 1,230,000, or 4.1 percent below the November figure of 1,282,000. The December rate for units in buildings with five units or more was 350,000. An estimated 1,800,700 housing units were started in 2006 – 12.9 percent below the 2005 figure of 2,068,300.
Privately-owned housing units authorized by building permits in December were at a seasonally adjusted annual rate of 1,596,000 – 5.5 percent above the revised November rate of 1,513,000 but 24.3 percent below the December 2005 estimate of 2,107,000. Single-family authorizations in December were at a rate of 1,164,000 – 1.2 percent above the November figure of 1,150,000.
Authorizations of units in buildings with five units or more were at a rate of 353,000 in December. An estimated 1,833,500 housing units were authorized by building permits in 2006, 14.9 percent below the 2005 figure of 2,155,300.
Florida Homeowners Insurance: Rates should drop at least 30%
TALLAHASSEE, Fla. – Jan. 18, 2007 – House leaders edged closer to common ground with the state Senate on Wednesday by passing a bill to cover more risk for property insurers in the event of a catastrophic hurricane, a plan they claimed could slash windstorm insurance rates by as much as 65 percent.
The proposal, one of a series passed by the full House, nonetheless met with mixed reviews in the Senate, where some members questioned whether it could actually deliver on its promises.
Both chambers passed competing property insurance legislation Wednesday, setting up negotiations on a final product that are expected to continue through the weekend.
Lawmakers spent much of the second day of their special session grappling with the issue of costly reinsurance, which private insurance companies buy to guard against massive losses but which also drives up rates for policyholders.
The new House plan, hammered out late Tuesday night by a contingent of Democratic and Republican members, appeared for the first time in a House council meeting Wednesday morning. It would expand the Florida Hurricane Catastrophe Fund to cover damages up to as much as $30 billion of losses in a single season. The state-backed “cat fund” currently kicks in after insurers’ season’s losses reach $6 billion, providing an additional $16 billion.
State fund costs considerably less
Insurers would have to pay for that additional $8 billion of coverage through the cat fund, at a cost of 10 cents for every dollar of reinsurance above the $22 billion mark, significantly cheaper than private reinsurance rates. Participating insurers would have to pass along 100 percent of the savings to policyholders, filing new rate requests as part of the process of applying for the additional state-backed insurance.
“Conceptually, I think it is an opportunity to create more capacity for State Farm in this marketplace,” State Farm Insurance lobbyist Mark Delegal told members of the House Policy and Budget Council.
Insurers would have to provide consumers with a minimum of 25 percent savings on windstorm insurance rates. Rep. Dick Kravitz, R-Jacksonville, said the plan could bring down windstorm rates by as much as 60 percent, and other negotiators of the plan predicted as much as 65 percent, citing a combination of input from the Office of Insurance Regulation, officers at the state cat fund and industry representatives.
Rates should fall at least 30 percent
Overall rate reductions for homeowner policies could exceed 30 percent, Kravitz said, though final numbers are still in the works.
Dave Foy, chief of staff for the state Office of Insurance Regulation, confirmed in an e-mail sent to the House Majority Office that rate savings of 33 percent to 38 percent would be a reasonable expectation.
The bill could bridge at least some of the divide between the House and Senate, which wants to create a state-backed “super reinsurance pool” for insurers. This superfund would cover insurers’ losses above $22 billion, the amount that includes the first $6 billion in damages covered by the industry and the additional $16 billion offered by the catastrophe fund. It was conceived with no specific funding source, and funding would not be secured until losses above $22 billion were incurred.
Both the House and Senate plans now include greater state participation at the high end of the damage scale. Earlier, House leaders were critical of the Senate plan, characterizing it as dangerous.
“I’m thrilled at the direction that they’re moving in,” said Senate Banking and Insurance Committee Chairman Bill Posey, R-Rockledge. “We’re coming closer together.”
However, Sen. Steven Geller, architect of the Senate plan, took issue with claims that the House plan could result in a rate rollback of as much as 60 percent or 65 percent on the wind portion of a policy. The Senate plan offers the state backstop with no strings attached, yet windstorm policy savings from the Senate plan had been pegged at only 25 percent to 40 percent below current rates, he said.
There is “massive confusion,” he said, over how much savings each plan would offer. Under the House plan, any losses exceeding the $30 billion covered by the pumped-up cat fund would revert to private insurers. The Senate superfund has no ceiling.
House, Senate differences remain
House Speaker Marco Rubio continued to balk at the “Geller plan” in the Senate on Wednesday, saying it was too risky to pass during the special session.
Another deal breaker for Rubio is any expansion of Citizens Property Insurance Corp., the quasigovernmental insurer of last resort that the speaker called “broken.” Rubio did not rule out expanding Citizens’ role in the insurance market, as the Senate has proposed, but objects to addressing it during the special session.
The House and Senate packages do provide rate relief for Citizens consumers by rolling back this month’s rate increase and canceling one planned for the future, which was mandated by a bill passed last legislative session.
Citizens customers would see no direct benefit from expanding the cat fund or creating the Senate’s super reinsurance fund, however, as Citizens is not paying for reinsurance now. Market forces suggest that if private rates fall, Citizens’ would follow suit.
Both the House and Senate plans have provisions requiring insurance companies writing other lines of insurance in Florida to also offer homeowners insurance here if they do so in other states. The move to prohibit “cherry-picking” of lucrative lines while avoiding riskier business was popular, but controversial. Opponents fear it could send even more insurers packing, or force up rates in other lines to make up for the higher risk of property coverage.
Gov. Charlie Crist lauded lawmakers on Wednesday while avoiding taking sides. “What’s most important to me, and I’ve said it over and over again, is that we have significant rate reduction,” he said. “How we get there is not important to me. What is important to me is that we get there, and we get there as soon as we possibly can.”
Senate leader: Property tax could go on ballot this year
TALLAHASSEE, Fla. (AP) – Jan. 12, 2007 – Lawmakers could put a property tax relief measure before voters as early as this fall, Senate Finance and Taxation Committee Chairman Mike Haridopolos said Thursday.
Legislators have been flooded with complaints about inequities and rising property taxes, spurred largely by sharp increases in real estate values.
“There is a real hunger for some commonsense help,” Haridopolos, R-Indialantic, said after his committee received an update on reform efforts. “I think this is a big enough issue to hold a separate election.” If the Legislature did that, it would beat the Taxation and Budget Reform Commission to the punch.
The Florida Constitution requires such a commission to meet once every 20 years, starting in 2007, to review the state’s budgetary, revenue and spending procedures. The commission, yet to be appointed, also can put amendments dealing with those issues on the ballot the following election year, in this case 2008.
It would take a three-fourths vote in the House and Senate to call a special election to amend the constitution this year, Haridopolos said. Amendments offered at regular elections take a three-fifths vote.
Complaints about inequities have centered on the Save Our Homes Amendment that voters adopted in 1992. It limits property tax increases on homes occupied by their owners to 3 percent annually, but homeowners who move lose their accumulated benefits. Many, as a result, have felt locked in to their existing homes.
A solution known as portability would let them take some or all of their Save Our Homes benefits with them when they move.
Local government officials have resisted that idea for fear of losing revenue, but a Department of Revenue study presented to the committee predicts tax rolls would be reduced only 0.7 percent in 2008 and 2.4 percent in 2012 by a statewide portability provision.
The report cheered portability advocates. “In the four years I’ve handled this issue the clarion call from local governments has been if you somehow allow portability we’d literally bankrupt local government,” Haridopolos said.
Sen. Jeff Atwater, R-North Palm Beach, argued the effect would be even less than the Revenue Department estimated because home sales would increase once homeowners no longer felt locked in.
The Legislature’s Office of Economic and Demographic Research has commissioned a property tax study that will include that factor and others.
Haridopolos said the Legislature could focus just on portability although he advocates a comprehensive approach including tax relief, not just reform.
“We might have to look at actually putting an overall revenue cap on local and state government,” Haridopolos said. “Everything is on the table.”
The Legislature will gather public comment on the property tax issue during a series of town hall meetings that begins Jan. 25 in Panama City.
Insurance authority sought by legislators
TALLAHASSEE, Fla. – Dec. 11, 2006 – Democratic legislators said Wednesday that homeowner insurance bills in South Florida could be slashed by as much as 30 percent to 40 percent under their plan to create a state rate reduction authority. The backbone of the plan is an idea that Democrats have been pushing for months to make the state of Florida the primary windstorm insurer for all homes in Florida.
On Wednesday House Democrats presented a formal 24-page plan at a House property insurance conference called by Speaker Marco Rubio, R-West Miami. The plan, detailed on the third and final day of the conference, creates an authority specifically charged with lowering Floridians' homeowner insurance rates.
The authority would set insurance prices and insure a home for 80 percent of initial windstorm damage – with a cap of between $50,000 and $500,000. Private insurers would pick up the rest of the loss. Under the plan, private insurers would sell the coverage and adjust losses.
Dan Gelber, D-Miami Beach, the House minority leader and one of the plan's authors, contended that the rate reduction authority would be able to operate at less cost than the insurance industry because it would be nonprofit.
An actuary hired to work on the proposal estimated that the rate reduction authority could earn $47 billion in premiums over 10 years, based on it covering 80 percent of a homeowner's first $100,000 in damage. Based on hurricane losses in Florida between 1995 and 2005, the system would have resulted in a $30 billion payout over the 10-year period, leaving a surplus of $17 billion, Gelber said.
House Democrats say the authority would not need to buy costly reinsurance required for insurance companies to hedge their potential losses. As a public authority it could self-insure, saving hundreds of millions of dollars in reinsurance fees in a given year. "FDR had the New Deal, what we are proposing is Florida's fair deal," said Rep. John Seiler, D-Pompano Beach.
But Bob Hartwig, an economist with the insurance industry-funded Insurance Information Institute, said the plan amounts to a "shell game." It gives homeowners a premium discount upfront in exchange for financially devastating surcharges that would need to be assessed on all homeowners after a hurricane caused major damages, he said.
"The savings are illusionary," according to Hartwig, who said the authority is "guaranteed" to go broke in the future because a major hurricane will eventually strike. Tax increases might also be needed if a hurricane hit and the state's credit rating might be put in jeopardy, he said.
Hartwig said a repeat of the 1926 Miami hurricane, the worst hurricane ever to hit the Florida coast, would cause as much as $80 billion dollars in insured losses.
Gelber conceded that surcharges could be in the offing if a major hurricane caused extensive damage, especially in the authority's early years when it was building capital.
But Gelber said such a storm could devastate Florida under the present system. He said it's clear the current system isn't working, and the threat of a catastrophic storm is no reason to stop the rate reduction authority.
"The federal government would have to step in and help under those circumstances," he said, as it already does. Republican legislators, who control the House, were complimentary to the proposal, although they did not endorse it. "On one hand there is a feeling that the state shouldn't be in the insurance business and on the other hand there is a feeling that, at this stage, the private market doesn't want to be in the insurance business," Rubio said. "Those are the competing schools of thought that are emerging from this process."
Mortgage rates at their lowest in 10 months
Mortgage rates around the country fell last week, with rates on 30-year mortgages sinking to their lowest level in 10 months -- an average 6.18 percent, according to Freddie Mac's weekly nationwide survey.
Bargain hunting?
Buyers and sellers are waiting for the other to blink: The housing slowdown isn't giving buyers the big bargains that they might have hoped; and where there are discounts, buyers aren't leaping to grab them, says Karl E. Case, an economics professor at Wellesley College, who specializes in real estate. Case says the most recent survey he and a colleague conducted among homebuyers revealed growing pessimism about buying in a down market. "They're scared they're going to buy something very expensive that's going to fall in value," he says. Sellers, meanwhile, are being "stubborn. They seem to be holding out so far."
The result: "People are staring each other down." Case described home prices as having "downward stickiness," meaning they don't fall nearly as much as they rise during the strong periods. In previous down periods, Case points out, the economy has been in a general slump.
This time, in most parts of the country, the economy is growing and adding jobs. Case concludes the housing market is in "that flat period, of four to six quarters, where prices don't plummet. They hold on."
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