Naples, or Post Cards from the Edge

Normally I do not use Long Sunday as a site to share my personal travel escapades. They are rather uninteresting and uninspired. But I have recently returned from a week long stay in Florida and I thought some of my experiences well suited for a post or two. I saw and heard a good many things that reflect obscene amounts of real estate development and generally meaningless but profitable hyperactivity. So the following is really more about economic development than my vacation.

You see, we Americans are very industrious. We build and destroy constantly (I think they call it “creative destruction“), Florida being an extreme microcosm of what is generally taking place through out the country.

Interestingly, many folks in Florida are not necessarily happy about all this activity. For example, a recent editorial in the Naples Sun Times:

Last week, in a speech before a meeting of PRACC, the Public Relations, Marketing and Advertising Professionals of Collier County, Tammy Nemecek, head of the local Economic Development Council, warned that Naples and Collier County are at a crossroads, or more accurately, a fork in the road. One lane points towards Collier County as a bedroom community for rich snowbirds, devoid of infrastructure and opportunities for the working class and entrepreneurs. The other lane, which the EDC would like to take, leads to Collier County as a vibrant hub of business development, affordable housing, culture, education and, of course, world-class resort amenities for everyone. Nemecek urged people to let the local political establishment know the kind of community they want their children to grow up in. Actually, she said that those children won't be sticking around unless Collier County provides affordable housing and good-paying jobs.

While there is nothing earth shattering in this statement, it struck me that most Floridians I spoke with were critical of both the pace and type of economic development taking place. During the recent real estate boom (which seems to have already peeked and started “correcting” itself) many speculators were buying property and than “flipping it” within 12 to 18 months. The profits were usually in the neighborhood of at least 50% to 150%. While this is great news if you have the money (or credit) to participate, for most families this speculative bubble makes it nearly impossible to buy a new home. This problem is compounded by Florida’s property tax structure, which makes it costly for long time residence to sell their homes and buy new property. For those who use a property as their primary residence, tax increases are capped at the level of inflation (currently about 3.0%). So if you have been in your home for a long time, you pay a lot less tax than someone who buys the same home today.

A real life example may bring the impact of this into focus. I have a friend who bought his home 15 years ago and paid $100,000. Today it is worth about $280,000 but he only pays $1,400 a year in property taxes. That is great for him - and he is very happy about this. He has a great home and a modest tax bill. But, if he were to sell it, the new owner would have to pay $4,000 a year in taxes, based upon its current market value.

Not only does this state of affairs stink for the new owner but it has larger affects as well. This discrepancy helps fuel the speculative real estate market because speculators can easily absorb the taxes, especially since it is a very short term cost for a very large profit. In essence, it becomes just another “cost of doing business.” But for the average family, the large tax bill adds another barrier to purchasing a home. In essence, the new home owners are subsidizing the lower tax rates of the older ones.  This creates a situation where only wealthier individuals can afford a home at all.  In other articles I read, teachers, police and fireman discussed the fact that their incomes have obviously not kept up with the rapid increase in home costs.

Of course, as all bubbles eventually burst, the Florida real estate market has already cooled off. But not only speculators are feeling the pain - what makes Florida attractive to many affluent snow birds (beside the warm weather) is that it has no state income tax. This creates a situation where Florida is very dependent on property taxes to pay for basic services, in addition to its more traditional role of paying for schools. And a widespread market collapse would have a devastating impact not only on property values, but on the States ability to provide things like medical assistance to the large elderly population. A great deal more than property values is at stake.

Oh yea, and Jeb Bush is the governor and Katherine Harris (yes, that Katherine Harris) is running for the Senate.  It's a hell of a time to be a Floridian.

In future posts I am going to discuss such wonders as the Everglades, the Salvador Dali Museum, and a ride at Disney World that really kills people.