Every bubble eventually pops. In real estate, the million dollar question is always, when? Many Florida property owners may be surprised to find out that a very important vote, taking place this coming November, has the potential to impact the answer as to when our current bubble may implode.
The vote has to do with an artificial property tax cap that was signed into law 10 years ago. That 10 percent cap for non-homestead properties, approved in 2008, will once again be on the ballot in November. If it is not approved by a supermajority (60 percent) of the voters, a dramatic disparity of taxes will occur that will have a myriad of consequences.
Florida law defines a non-homestead property as a property not used as a primary residence, such as rental properties, second homes and commercial properties. The law has kept those property taxes artificially low, regardless of how much their true real estate value increased over the past 10 years.
To understand the consequences of the cap not being reinstated this November, one must first understand what the original intention of the tax cap was and what it has meant for property owners over the years.
The original intention was to benefit property owners by reducing inflationary pressures in their tax assessments. In effect, it has allowed property owners to make fairly accurate predictions as to their future tax liability. With our present tax cap, Florida in effect has created the "Welcome Stranger" effect. This is where a new owner would contribute a larger percentage of taxes to support the local government, in contrast to longer-term owners who would pay lower taxes. In other words a new owner does not have the right to "lock in" to the same prior assessed value as is enjoyed by an existing owner of a comparable property. This has created a disparity of taxes that may come to a dramatic, screeching halt if the tax cap disappears in November.
In hindsight, we would not be faced with this situation had our elected officials planned a gradual downward percentage of tax adjustments, spread over a few years. Alas, we seem to again be facing an all-or-nothing vote.
Some homeowner believe eliminating the tax cap may be a good idea for them. They think that commercial properties will be the ones paying the higher taxes, in effect creating more tax revenue for the State and believe that the County's millage tax rate on residential homestead properties will then be lowered for them. Although that logic sounds good, it is not entirely correct.
Here’s why: If property taxes increase for commercial property owners, those new expenses will ultimately be passed along to their retail tenants, which will in turn result in higher prices at the cash register. Owners of apartment buildings will increase their rentals, and on and on.
Banks may also have not have anticipated that. Instead of reasonable tax increases for their mortgage clients, they may soon be faced with a new reality. What will they do regarding their monthly escrow accounts, to cover the new higher tax bills?
These are just some examples of the trickle-down effect that will certainly happen, should the cap be eliminated.
Some owners may no longer be able to afford to keep their properties and may have to pay increased taxes on what they own. In fact, taxes have the potential to double or even quadruple. Owners may be forced to sell, and this may lead to a market correction in Florida, destroying values in a short space of time. Certainly, we will see a tremendous increase in property assessment appeals to be filed with the County Value Adjustment Boards, throughout the state. It may end up being something not expected and certainly, never previously experienced. The year 2018 may very well turn out to be the year when the house of cards collapses.
Barry Sharpe is the managing member of Property Tax Appeal Group, petitioning assessments and Sharpe Properties, who own a portfolio of commercial properties in South Florida. Both are based in Hialeah. email@example.com.
▪ This opinion piece was written for Business Monday in the Miami Herald. It represents the point of view of the writer and not necessarily that of the newspaper.
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