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Tax changes may boost home sales


Economists caution, however, that an oversupply of houses would prevent a new boom.

The St Petersburg Times
By JAMES THORNER
Published June 27, 2007

http://www.sptimes.com/2007/06/27/Business/Tax_changes_may_boost.shtml

Florida's proposed "super homestead exemption" would slash taxes by about 70 percent for the owner of a new median-priced house in the Tampa Bay area.

And that, economists suggest, could give a push to a housing market that has spent the past year stuck in the mud.

"My assessment, is, yes, this would help the real estate industry, but it's not going to resurrect it entirely, " said University of Florida economist David Denslow.

Voters will decide in a Jan. 29 referendum whether to approve the super exemption. It would cut taxes statewide by about $15-billion. That's on top of another $15-billion tax reduction already imposed by the Legislature on local government.

Since many people pay their property taxes along with their monthly mortgage payment, the effect on the housing market can only be good. For some people, having a monthly housing payment a few hundred dollars lower can mean the difference between buying and renting.

But the super homestead exemption would be no cure-all to Florida's housing woes.

While tax reform may bring better times for the Florida housing market, economists caution, price declines of the past year stem more from an oversupply of homes than from rising property taxes.

In Pinellas, Pasco and Hillsborough counties, the number of homes and condos listed for sale in May stood at 41, 600, quadruple the inventory of two years earlier. May sales disappointed, Realtors theorize, because buyers wondered how deeply the Legislature would cut taxes.

In what's pegged as the largest tax cut in Florida history, the Legislature proposes an immediate 3 percent to 9 percent rollback in local tax rates. In January comes a voter referendum, required for all constitutional changes, on whether to adopt the super homestead exemption.

The current $25, 000 flat exemption would disappear in favor of a 75 percent exemption on the first $200, 000 in home value. From there the plan becomes less generous: A 15 percent exemption attaches to the next $300, 000 of a home's value.

The changes would benefit primary residences, not second or vacation homes. And it comes with a provision allowing homeowners to choose: Those who have tiny tax bills thanks to the Save Our Homes cap on annual assessments, or think their tax bills would be lower in the long run, would be allowed to stay with the old system.

But if you bought a home in the past year or two, the tax cuts would be substantial.

On a median priced house in the Tampa Bay area - one costing $200, 000 - taxes would drop by 71 percent. If your county charges 20 mills, the tax bill on that $200, 000 home would drop from $3, 500 to $1, 000 a year.

That's $209 off your monthly house payment, enough, if plowed back into your purchase, to afford a $230, 000 home.

Considering that most home purchases require buyers to prepay their first year's taxes, the deal would save buyers substantial closing costs.

"The tax plans means much of the uncertainty in the real estate market is now gone. In my view, that's one of the best things about this: At least they're doing something, " said University of Central Florida economist Sean Snaith. "But I don't think it's an instant cure-all to the glut."

Many supporters of the tax overhaul predict the deal will stimulate the market by making it easier for people to change homes.

Now, many longtime residents cling to their houses because they'll lose their Save Our Homes cap if they move. For these homeowners, buying a smaller, less expensive house might actually lead to higher tax payments.

Denslow said the best evidence about mobility comes from California's Proposition 13.

California allows homeowners over 55 to move without getting whacked by higher taxes, something known as portability. The state found that annual housing turnover rate ticked up from about 10 percent to 12 percent.

"There's a little bit of evidence that the changes in Florida would encourage mobility, " Denslow said. "How people actually respond is the big question."

The governor and Legislature are asking many of the same questions. The tax plan's potential to stimulate mobility, the real estate market and home values is the subject of an upcoming study by two Florida State University economists, David MacPherson and Dean Gatzlaff.

MacPherson said the state has gagged the partners until the study is delivered July 31, but he tentatively concluded the tax cut would be a "wash" economically.

In Denslow's view, the best way to stimulate the economy and make Florida more attractive to high-paying companies is to cut business taxes.

This tax plan, like Save Our Homes before it, could do just the opposite. By sparing homeowners, the state will likely encourage localities to dip into one of the only wells left: business taxes.

"I'm actually disappointed in the plan for that reason, " Denslow said. "My view is that the net affect is harmful. This will increase the business share of taxes."

Fast Facts:

Affordable housing

Many people pay property taxes as part of their mortgage payment. The proposed super homestead exemption would trim the monthly payment on a new, median priced home by about 15 percent. Here's a breakdown:*

Now: $1,481 a month ($1,064 principal and interest, $125 insurance and $292 property taxes)

With new exemption: $1,272 a month ($1,064 principal and interest, $125 insurance and $83 property taxes)

Monthly savings: $209.

* For a $200, 000 house with 20 percent down at 7 percent interest. Assumes property taxes of 20 mills and $1, 500 in annual insurance.
 

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^^ Wondering the same thing. I'm just assuming that they are not going to get the 60% vote needed. I really don't believe this is the ultimate answer anyway. The overall property appraisal and taxation process needs to be completely overhauled. Property should be taxed on an equal basis based on its characteristics (land size, square footage, etc...) The SOH cap has to be phased out. That would obviously mean that many long time residents would see their taxes increase but that's life. Why should I be subsidizing other property owner’s taxes just because I bought my property in the last few years?
 

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^ I agree with your last sentence. I bought my house in November 2005, and have a co-worker who has a house valued at 4 times the value of mine. He pays less property tax than I do. Something isn't right with this system. I'm not sure I will even vote "Yes" on this bill.
 

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^^ Wondering the same thing. I'm just assuming that they are not going to get the 60% vote needed. I really don't believe this is the ultimate answer anyway. The overall property appraisal and taxation process needs to be completely overhauled. Property should be taxed on an equal basis based on its characteristics (land size, square footage, etc...) The SOH cap has to be phased out. That would obviously mean that many long time residents would see their taxes increase but that's life. Why should I be subsidizing other property owner’s taxes just because I bought my property in the last few years?
110% agreed!!!!!!!!

I ultimately have zero desire to see my taxes reduced, though I'll obviously accept a cut if it's the result of a system overhaul which corrects the corrupt ways of the past when SOH was myopically ramrodded through by rubber stamps, not leaders... I just want to see an equitable tax system where the SOH freeloaders finally pay their share, and stop screwing over the rest of us.
 

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I totally agree as well. I will not be voting "yes" in January, even though my taxes would be reduced by half. I'd have voted "yes" for an increased sales tax and some sort of elimination or reduction in the property tax.
 

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Bottom Line: I am tired of paying so much for property Tax. Why should the larger base (Renter's) not pay a fee as part of the lease agreement? Last time I check....renters use the same roads I do....schools....services. Should they get a free ride? Hell no. I will vote yes, just so the burden is taken off the home owner, but all the renters will vote no.....so it will not change. We pay more for property tax then New England....or any place I know of. If things don't change, I plan on selling and moving to a state that is going to be more fair.....to may handouts in Florida...in the US to be honest!

And what services am I getting for my taxes anyways? I pay for my garbage/trash....through my water bill.....I pay tolls on the roads...I pay for my vehicle tag.....I don't have kids in the school system....so I am not sure what I am getting.....I don't mind paying for education....but people need to start paying for what they need.. Services....please
 

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^I think renters probably pay higher rent to cover the owners property tax... at least that is how it usually works. I am voting no for sure in January.
 

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^^ I'm planning on voting against it as well. This so-called solution isn't well thought out in my opinion.
 

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And what services am I getting for my taxes anyways? I pay for my garbage/trash....through my water bill.....I pay tolls on the roads...I pay for my vehicle tag.....I don't have kids in the school system....so I am not sure what I am getting.....I don't mind paying for education....but people need to start paying for what they need.. Services....please
Ummm services? You drive on roads (other than toll roads) don't you? You have police and fire protection don't you? You have parks to go to don't you? You have street lights don't you? You wen't to school at one time didn't you?

What about code enforcement, economic development, stormwater, sewers, animal services, jails to keep criminals from ruining your life, the court system, emergency management, libraries, public transit, etc.

It takes money to run all of this! It amazes me thst people think government provides them nothing. Look at your life. If it weren't for government you wouldn't have the standard of living you enjoy today.

I will vote NO on the super homestead exemption but I believe everyone should pay their fair share no matter if you have lived in your house for one year or 20...there needs to be equity. This tax plan doesn't address equity.
 

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Bottom Line: I am tired of paying so much for property Tax. Why should the larger base (Renter's) not pay a fee as part of the lease agreement? Last time I check....renters use the same roads I do....schools....services. Should they get a free ride? Hell no. I will vote yes, just so the burden is taken off the home owner, but all the renters will vote no.....so it will not change. We pay more for property tax then New England....or any place I know of. If things don't change, I plan on selling and moving to a state that is going to be more fair.....to may handouts in Florida...in the US to be honest!
As others have pointed out, unless the rental owner is stupid he will charge more rent to cover the increased tax cost.
 

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Renters do pay property taxes!!!!

The tax is included in the cost of rent. Do you think a property owner is going to eat the cost of taxes?..LOL. When you pay your rent a portion of that goes to pay property taxes which the property owner is paying Perhaps property owners need to start breaking that down on the rental agreements.
 
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