Can Florida Save its Home Builders?
The Motley Fool opines that you don’t need to rent An Inconvenient Truth to see that Florida is sinking. With the cost of a Florida mortgage higher than most people can bear, the state could be facing a housing crisis of epic proportions.
It’s more than that, though. You see it in residents whose homeowners insurance rates have soared after a streak of bad hurricanes. You also see it in their incredulous gazes as simple residential moves trigger a surge in their property tax bills. And so on.
The state government has a plan to bail out its distressed citizenry, but the misunderstood measure faces an uphill battle in winning over skeptics. The idea - eliminating all property taxes on primary homes by increasing the state’s sales tax rate by 250 basis points - is a bold endeavor, one that supposedly pits homeowners against renters.
No one seems to be saying the obvious - this is ultimately a move to help the state’s battered developers - but the Fool will go ahead and say it. That’s all it really is when you think about it.
Like a lot of Florida’s eccentricities, its home builders have come in all flavors. You have conventional real estate developers like Lennar or high-rise specialist WCI Communities. You also have some companies that took quirky paths on the road to becoming real estate barons.
St. Joe was a paper and pulp company until it began to cash in on its ample and valuable land in the panhandle. As the largest private landowner in the state, it soon began changing the business of Florida real estate. Levitt came into its own by transforming orange groves into developments.
The Florida housing market slump has impacted its players. St. Joe has now backed out of the actual home building market, handing over the grunt work to Southeastern developers like Beazer Homes. Levitt accepted a big buyout offer last month that values it at half of where it was two years ago.
WCI has been portrayed as the poster child of coastal condo cancellations. Lennar has had to quadruple the amount of buyer incentives it provides to woo anyone interested in buying.
Downfalls can be found in hot markets all around the country. The problem is exacerbated in the Sunshine State not just because of high Florida home mortgage payments, but due to the spiraling tabs of home insurance and property tax statements.
The real estate insurance market in Florida has become a problem, especially in the coastal, storm-ravaged hotbeds. Higher home insurance rates mean Floridians have less disposable income, and also make property ownership appear less attractive, especially to investors who now have higher holding costs before flipping properties for profit.
It doesn’t get any better on the property tax front.
Florida caps property tax increases for current homeowners - it isn’t until a home is sold that new, higher tax rates kick in. The spike can startle homeowners who bought their homes and budgeted their payments based on the seller’s property tax bills.
In short, someone who buys a new home for the same price at which they sold their old home would likely get slapped with thousands in new taxes.
Florida has made some moves to ease the blow. Voters have agreed to double the homestead exemption for senior citizens in the fall. The government is now proposing that the tax break go to all primary homeowners, along with making the property tax caps portable for new homes.
Many of these suggestions would be moot if property taxes are swapped out for a consumption tax. The debate will likely get fierce. Tourism officials will resent out-of-towners bankrolling free rides for locals, although most states tax hotel stays at higher levels than their state tax rates.
Renters will also shout even louder, though it’s naive to think that they are immune to their landlords’ rising ownership costs. If tax moves encourage the development and purchase of rental property, wider supply should help lower monthly rents.
The proposal to abolish property taxes would only present a partial break to non-primary homeowners like landlords, but renters should see some form of relief, or at the very least avoid the rent hikes that are coming down the pike if the problems are left unchecked.
