Tax squeeze: What inflation and a real estate boom mean for property taxes this year

High inflation has already hit Florida grocery stores, gas stations and malls. Property taxes are next.

Homeowners in Florida would see double the increase in property taxes they paid last year if school boards, city councils and county commissions keep their tax rates flat.

A surge in inflation means homes will be valued higher for calculating taxes. That means higher tax bills unless local governments reduce tax rates enough to wipe out the increases.

Florida caps increases to the home value that is taxed, tying the ceiling to inflation — now at a 30-year high. The result: The 2022 ceiling on value increases for primary residences is at the maximum 3%, about double from last year when it was 1.4%.

Owners of rental apartments and homes also should expect a spike in property values on their tax bills after a surge in real estate sales sent prices to record highs this year. Increased taxes on rental property would likely be passed on to renters at a time when Miami-Dade tenants are already seeing some of the steepest rent increases in the country.

“I’ve never seen an increase like we saw this year,” said Pedro Garcia, the county’s elected property appraiser who first took office in 2008, referring to the jump in property values. In Miami-Dade, assessed values used to calculate tax bills are growing at the fastest rate in 15 years.

Florida law allows up to 10% increases in assessed values for rental properties, second homes and commercial real estate, and local property appraisers say 2022 is pushing the limit on assessments.

Property values were up 12% in Miami-Dade County when 2022 began, the highest increase since the 15% surge in 2007 ahead of a national housing crash. That would mean an extra $191 million for the county budget if Miami-Dade keeps property-tax rates flat.

Broward County saw a similar surge in taxable values, up 12% this year. Broward’s property appraiser, Marty Kiar, sees the run-up in values as driven by a construction boom and an influx of buyers from New York, California and other higher-priced real estate markets after the COVID-19 pandemic made working remotely more common.

“We have people moving in from pretty much every state with an income tax,” Kiar said. “And they’re paying top dollar for properties. That’s really what is driving the increase in values.”

READ MORE: What does high inflation mean for property tax bills in your city?

The combination of inflation and rising real estate values is driving a push for tax-rate cuts as the summer budget season begins for local governments. Spending plans and how much property owners must pay will be finalized in September.

“People definitely are looking for relief,” said Eric Diaz-Padron, a former West Miami council member who was elected mayor this year after promising to cut tax rates. The city of about 8,000 people charges the same tax rate for municipal services — $688 for every $100,000 of taxable value — that it did 10 years ago.

This year, Diaz-Padron says he has momentum for lower rates and proposed a 3% rate reduction for 2023. “That was a big part of my campaign,” he said. “It’s not just a populist message. It’s very doable, given the money we have coming in.”

Florida’s Department of Revenue sets the yearly “Save Our Homes” cap on increases for taxable values on primary residences, based on the inflation rate. At the start of 2022, inflation was up 7%, the highest increase in the history of a state program that started in 1995.

The past five years saw inflation low enough that the average cap for homeowners was 2%.

Miami-Dade County collected more than $2 billion in property taxes this year, money that funds law enforcement, rescue services, parks, transit and libraries.

In June, county property appraiser Garcia sent a letter to county and city leaders across Miami-Dade recommending they consider a 3% cut in tax rates to offset the 3% increase in taxable values facing homeowners.

While homeowners have taxable values capped at 3%, other property owners are more exposed to changes in real estate values. That includes owners of rental apartments, a group Garcia said shouldn’t be overlooked when it comes to tax relief.

“We have to worry about the owners of those buildings as well,” Garcia said. “If they receive an increase in taxes, those taxes will be passed onto the renters. We have a rental crisis. This is a tremendous time to help the owners of these properties.”

Miami-Dade Mayor Daniella Levine Cava proposed 1% cuts to Miami-Dade property-tax rates. That would mean giving up about $24 million in additional revenue under current rates and take in roughly $165 million in new property taxes over what was forecast for 2023 in this year’s county budget.

READ MORE: Miami-Dade’s first $10 billion budget has more than $40 million in new housing relief

The County Commission’s Office of Policy and Budgetary Affairs estimates a 4% cut would be needed to fully compensate for inflation and keep tax bills for the average homeowner flat. Lowering tax rates that much would cost the county about $94 million in new revenue for the 2023 budget year that begins Oct. 1, according to the July 14 analysis.

The same analysis found that the Levine Cava tax rates would still mean higher tax bills for homeowners with a 3% cap on value increases. For a home worth $200,000 this year and subject to the four county taxes, the owner would pay an extra $41 with a 1% cut in rates in 2023.

In the city of Miami, the largest apartment market in the county, values on multi-family properties are up 14% this year. About a quarter of the gains came from new construction, with the rest driven by value increases on existing apartment complexes, according to a report from Garcia’s office. In suburban Miami-Dade, apartments in the unincorporated area outside city limits saw values spike 16%.

For Resia, a Miami apartment developer and operator, property taxes and insurance account for about half of yearly operating expenses, said Alex Ballina, the company’s director of governmental and public affairs. The company targets what’s described as the “workforce” sector of the rental market, with apartments typically renting for between $1,000 and $3,000 a month.

Ballina said currently Resia is budgeting for increases in property taxes in the 9% range this year, expenses that get passed on to renters as leases renew.

The 2021 tax bill for a Resia property in the Kendall area, the Coral Reef apartment complex on the 9700 block of Southwest 152nd Street, was about $275,000, according to county records. That amounts to about $1,500 per year for each apartment in the 174-unit complex, where monthly rents range between $1,900 and $2,800.

“The only way to offset those costs is to pass those costs onto the renter,” Ballina said. “The renter feels it a little bit, because you have to keep up with not just inflation, but also with property taxes and insurance costs.”

The Coral Reef complex isn’t in a city, so it pays municipal taxes to Miami-Dade as well as the countywide property tax charged on all land. Combined, that amounts to $930 for every $100,000 in taxable value, a rate that includes the county’s taxes for fire and library services.

In her $10 billion budget proposal released Friday, Levine Cava proposed a 1% reduction for those four property-tax rates. She urged county commissioners not to follow Garcia’s recommendation for a 3% cut, warning that Miami-Dade can’t count on rising real estate prices to cover increased government costs if the housing market slides like it did the last time values were rising quickly.

She proposed spending some of the county’s 2022 property-tax windfall on a string of programs aimed at cushioning housing costs for some while not giving broad rate cuts to large commercial property owners, real estate investors and other businesses.

“We will provide targeted help for those who need it most,” Levine Cava said.

Inflation and affordable housing

Under the Levine Cava budget, Miami-Dade would use part of the new revenue to create a $43 million Inflation and Affordable Housing Stabilization Fund to pay for new and expanded relief programs.

That includes new subsidies for landlords like Resia that charge rents considered affordable for families earning less than $140,000 a year.

The latest numbers from the Property Appraiser show about 430,000 properties in Miami-Dade have the “homestead” designation needed to receive the 3% cap on assessed values for primary residences. That’s about 45% of the nearly 930,000 properties on the county’s rolls.

But the homes with valuation caps only account for about 25% of the county’s taxable value, a gap that Levine Cava said shows why larger rate cuts would provide more savings to owners making profits from real estate instead of homeowners pinched by inflation.

“Because of homestead exemption, the majority of homeowners will not be paying that much more. It’s capped at 3%,” she said. “Most of the increase is really from investors. Hedge funds, speculators — people who are buying up individual homes and flipping them for huge profit. Those are the people who would be benefiting from a larger budget cut.”

Data from Garcia’s office shows about half of the homes sold in 2021 were bought as primary residences, not for investments. Of the 55,000 residential sales recorded in 2021, more than 28,000 were bought by someone who later declared it a primary residence in tax forms.

Some county commissioners see inflation as too high for them to support Levine Cava’s plan for a small rate cut and new funds for targeted relief. They want a rate cut closer to the 3% Garcia proposed.

An additional 1% cut to Miami-Dade’s countywide property tax on top of the mayor’s proposed 1% reduction would cost the budget about $17 million, according to the Policy and Budgetary Affairs analysis. That’s roughly the cost of the proposed “Workforce Housing Initiative” for landlords, with its estimated budget of $18 million in recently approved legislation.

Raquel Regalado, a commissioner who may challenge Levine Cava in the 2024 mayoral election, said she would rather cut tax rates by another 1% than use the money for landlord subsidies. “That’s a percentage we could give to everyone,” she said.

This story was originally published July 20, 2022 at 6:00 AM.