Florida could see a rush of economic growth from cutting property taxes, but the move would expose the state to much greater risk of a downturn, one economist warns.
The Legislature is weighing proposals, at the direction of Gov. Ron DeSantis, to reduce or even eliminate property taxes in the state for primary residences. Any measure the Legislature passes would be in the form of a constitutional amendment that would go before voters in November. DeSantis has said he is seeking to relieve the ballooning tax burden on residential property owners and has suggested that eliminating the levy could incentivize homebuyers.
A new study from Florida Tax Watch suggests that Sunshine State homeowners pay $2,397 on average across the state, but that burden is uneven across the counties. Monroe County, which primarily consists of the Florida Keys, pays the highest rate, an average of $4,874 per person, while small Union County in the north, home to Lake Butler and the state’s Death Row, pays the least, $416.
Property taxes make up only a small portion of Florida’s budget, according to Ken H. Johnson, the Walker Family chair of real estate at the University of Mississippi. “You don’t need the property taxes when you have so many other streams of revenue, is the governor’s point,” Johnson told Homes.com.
In a state with no income tax, the state's general sales tax of 6% makes up roughly 64% of all collected taxes, according to the Florida Policy Institute.
Most of the rest is a combination of documentary stamp, corporate and tourist taxes, Johnson said.
Fewer taxes could send home prices soaring
The bigger issue is county and municipal budgets, in which property taxes account for 43% of general fund revenue, primarily covering public safety spending, according to a study Wichita State University published in December that the Florida League of Cities commissioned.
The Florida Tax Watch study breaks it down even further — 27% of county government budgets and 17% of municipal revenue — and goes on to suggest that ratcheting up other fees and taxes, such as additional municipal sales taxes and higher tourism taxes, could replace that revenue.
A note on Florida’s Tourist Development Taxes, also known as "bed taxes," as they are levied on hotel rooms: The rates vary by county. The highest is 6%, held by tourism-heavy counties such as Orange, home of Walt Disney World Resort. In the Florida Tax Watch study, Orange County brings in $466 per capita. Monroe, which has a 5% rate and the Florida Keys, brings in $971 per person annually.
However, per Florida law, bed tax revenue must be used for activities that promote tourism, either building facilities such as convention centers or entertainment venues, or for related advertising.
Johnson, who contributes to several ongoing indices on Florida's housing market, said smaller working-class counties will take less of a hit from the property tax cuts than the larger ones, which tend to offer more services.
The problem for smaller counties is the possibility that potential cuts could send home prices higher as more people elect to move into the state.
"You’re going to have an affordability issue, and those counties are already under affordability constraints right now," Johnson said.
From 2020 to 2024, the statewide median home price grew from $290,000 to $420,000, a 45% increase, according to Florida Realtors data.
Johnson predicts home prices will likely shoot up if property taxes are dropped. “This is like a sugar high,” he said. “There will be a short-term burst.”
Florida would become dependent on corporate, sales taxes and tourism
The hope would be that revenue lost from property taxes would be made up by the rise in economic growth that would follow, according to Johnson. “What you lose in property tax, you’re going to get back in economic growth, at least that and maybe more as prices go up.”
“Now, that will create an affordability problem,” he said. Homes might become less affordable to the people who already live in counties such as Union, “but there are going to be more people moving into that county,” Johnson said.
So, all things being relatively stable, lost property taxes could be replaced and even enhanced by new economic activity.
The real trouble, according to Johnson, comes when things aren’t stable. Florida’s tax base would be entirely dependent on corporate and sales taxes and tourism. “Those things and home prices are at the most risk during a recession,” Johnson said.
Economic turmoil in the rest of the country would become a crash in Florida. Johnson foresees the 350,000 vacation and rental homes in the Miami-Dade tri-county area suddenly flooding the market as revenues crater. “That’s the black swan event here,” he said, referring to a term coined by author Nassim Nicholas Taleb for unexpected massive upheaval.
“You’re going to get short on taxes, and now you’re going to have a housing crash on top of that,” Johnson said. “The only good news is that affordability will come out of that … at the cost of billions of dollars in equity. That’s when people will say, ‘I can’t believe we did this.’”