Property Values, Legislation Create Florida Home Loan Winners and Losers

Thanks to Save Our Homes, the tax relief package aimed at keeping Floridians of moderate means from being taxed out of their houses, Florida home loan and property owners are essentially being placed into two classes: winners and losers.

The winners? Longtime property owners with homestead exemptions.

The losers? Everyone else, from those who recently took out a Florida home loan to apartment tenants, from snowbirds to owners of malls and office buildings, even longtime residents such as Matthew Krische who simply move a few miles away.

Consider the property taxes paid by Krische and his neighbor, Mike Ryan. Both live in spacious houses on an unpaved road west of Jupiter. Both men are business owners with homestead exemptions on their houses.

But all similarities end when the tax bill arrives. Ryan, an electrical contractor, paid $3,665 in property taxes last year on his home in Palm Beach Country Estates. Krische, owner of two dry-cleaning stores, paid $7,516 - more than twice as much, even though the county property appraiser assigns similar values to both homes.

The gap in their tax bills is but one example of the mounting inequities created by Save Our Homes, the tax break approved by Florida voters in 1992.

Similar Florida home loans … very different tax bills

Throughout Palm Beach County and the Treasure Coast, neighbors in nearly identical homes pay vastly different tax bills depending on when they bought their homes and whether they have a homestead exemption.

Even Save Our Homes’ supporters acknowledge that such gaps aren’t fair - and a growing chorus of critics complains that the tax break disproportionately rewards owners of high-priced homes.

But the measure’s staunchest critics say Save Our Homes won’t go away. Instead, there’s a push to expand the break by letting homeowners take it with them when they move and/or take out a new Florida home loan.

Other consequences in the Florida housing market

The wide discrepancies in tax bills aren’t the only unintended consequence of Save Our Homes.

Faced with big increases, many homeowners stay put rather than moving up or downsizing, creating a drag on an already-slowing housing market. The phenomenon even inspired a new nickname for the tax break, which some now refer to as “Slaves to Our Homes.”

Save Our Homes also has evolved into a regressive tax where the biggest benefits accrue to the wealthy. Golfer Greg Norman, Tampa Bay Buccaneers owner Malcolm Glazer, singer Jimmy Buffett, broadcaster Rush Limbaugh, even former Tyco International head Dennis Kozlowski, among other longtime owners of oceanfront manses, see millions in property value sheltered from taxes. All saved more than $100,000 in property taxes last year thanks to Save Our Homes.

Yet there’s no such break for cash-strapped first-time buyers who struggle to find homes they can afford. They pay taxes on the full value of their homes, posing one more obstacle to affordable housing.

History of the Florida property tax law

This all began 14 years ago when 54 percent of Florida voters whom checked off “yes” to Save Our Homes. The amendment to Florida’s constitution says the taxable value of a homesteaded property can rise by no more than 3 percent a year or the rate of inflation, whichever is less.

Throughout the ’90s, Save Our Homes didn’t matter much. After all, houses were not showing appreciation of more than a few percent a year.

But as home prices and Florida home loan applications have skyrocketed in the past five years, so has the gap between the taxable value and the true value of many homes. In 2005, Save Our Homes sheltered $29 billion in property value from Palm Beach County taxing agencies, up from only $2 billion in 1999, according to the Palm Beach County property appraiser.

The question of fairness is one of the few things that Save Our Homes’ supporters and detractors can agree on. Everyone - even the self-described “proud father” of Save Our Homes - acknowledges that it’s not fair.

“Nobody ever said it was fair,” said Ken Wilkinson, the Lee County property appraiser and Palm Beach County native who pushed for its passage. “The inequity it fixed was far greater than the one it created.”

That inequity, Wilkinson said, was caused by rising property taxes for longtime homeowners who were being taxed on the increasing values of their homes, even though they saw no benefit from those rising values until they sold.

Wilkinson said he wanted to force growth to pay for itself by making new Florida home loan owners pay their share of the new roads and schools they required. And he doesn’t have much sympathy for snowbirds here for brief stays during the year.

“If you can afford a vacation home in Florida, you should be able to pay the taxes,” Wilkinson said.

Future of Save Our Homes

There is one other thing everyone agrees on: Fair or not, Save Our Homes isn’t going away. Owners of homesteaded properties are the beneficiaries of the tax break, and they possess enough votes to keep the benefit - and perhaps even expand it, if a push to make Save Our Homes “portable” succeeds.

“We don’t think it’s fair,” Kurt Wenner, senior research analyst at Florida TaxWatch, a Tallahassee-based research institute, said of Save Our Homes. “It’s fundamentally flawed if you’re looking at a fair taxation system. But try convincing someone who’s saving $4,000 a year because of it.”

In truth, only a relatively few homeowners save $4,000 a year because of Save Our Homes. The average difference between market value and taxable value for Palm Beach County homesteaders is $84,218 - translating to a savings of $1,743.

One recent legislative study finds that most Florida homeowners save only a few hundred dollars a year as a result of Save Our Homes.

For the wealthiest Floridians, however, the savings can be striking. Greg Norman’s Jupiter Island home is worth $21 million, yet its taxable value is only $8 million, according to the Martin County property appraiser. He saved more than $220,000 as a result of Save Our Homes last year.

There’s nothing illegal or even secretive about A-list celebrities taking advantage of the tax break, but it’s not exactly what voters had in mind when they approved a measure intended to keep little old ladies from being priced out of their piece of paradise.

What about first-time buyers?

While the wealthy save big bucks, lower-income residents who are struggling to afford a Florida home loan must pay full freight.

Property taxes are just one more hurdle for first-time buyers, said Anita Jenkins, senior program director at South Florida Local Initiatives Support Corp., a group that helps low-income workers buy homes.

“People may qualify for the mortgage and interest, but the taxes and insurance turn into an obstacle,” Jenkins said. “There perhaps needs to be some rethinking about how Save Our Homes is applied to the low-income buyer.”

If there isn’t any tinkering to the law, those belonging to the lower classes won’t be able to afford Florida home loans of any kind. It will just serve as another obstacle to affordable housing in the state.