Real Estate Trends

For millions, owning real estate represents a chunk of the American dream — a permanent investment in the future. But purchasing, or even finding, affordable real estate isn’t easy. Changing trends in financing, fluctuating interest rates and a shortage of affordable housing, particularly in storm-ravaged Florida, have altered the real estate picture.

Florida’s real estate market has traditionally been hot, with both young professionals and well-heeled retirees opting for the endless beaches and mild climates of the Sunshine State. The recent housing boom has escalated home prices, making it a great time to sell. But there’s a downside to escalating property values, according to Michael J Posner of Ward Damon & Posner, an attorney recognized by peers as a Super Lawyer. He says buying a home may be a lot like the words to a Rolling Stones’ song, “You Can’t Always Get What You Want.”

Factor in increasing taxes and climbing insurance premiums, and monthly house payments may seem as steep as Mt. Everest. “Many potential homeowners are going to have to deal with lowered expectations,” Posner says. But even consumers willing to settle for a starter home are running out of luck. Low-cost housing has all but evaporated, leaving some families to choose between blowing their budgets on homes they can’t afford or long commutes that, with rising gas prices, are also cost-prohibitive. Some would-be homeowners purchase more home than they can realistically handle and finance it nontraditionally, such as with an adjustable rate mortgage (ARM). ARMs typically start with low monthly payments and adjust upward.

“Eventually, the homebuyer ends up with a payment that’s way over his head,” Posner says. “So he uses credit to help make his house payment.” Putting house payments on credit cards, financing homes for 40 years to keep payments lower, paying interest only, or worse, capitalizing interest with a negative amortization loan — all could add up to potential financial disaster.

Posner says these financial sleights-of-hand are byproducts of an economy where home ownership is moving beyond the reach of most citizens. The problem is that when prices eventually fall, homeowners counting on increased value to cover their mortgage balance may be in for an unpleasant surprise.

Some believe the answer to this shortfall in affordable housing lies in “inclusionary zoning,” which requires developers to incorporate plans for low and moderate income-level housing in their development designs. Mark Grant, an attorney with Ruden, McClosky, Smith, Schuster & Russell, sees inclusionary zoning as an inevitable method of balancing housing needs. He believes the mix of income levels in a housing area makes neighborhoods more interesting and diverse, in addition to providing more families with affordable homes.

Of course, the paucity of affordable housing is only one of many issues potential homeowners face. The housing boom has also spawned other concerns — such as how to pay for the infrastructure needed in newly developed neighborhoods. Imposing impact fees, a type of tax developers pay directly into a general fund designated for roads, community centers and school construction, may help. Though developers usually pass along these fees to the consumer through increased prices, tax attorney Bob Hudson, a peer-designated Super Lawyer at Baker & McKenzie, says the long-term effect of impact fees is minimal at best.

“Arguably these impact fees make the prices of new homes slightly higher, but no one is going to say the difference between the cost of a 20-year-old house and a new one is the impact fee,” he says. Besides, he adds, consumers should expect to have to pay for the infrastructure that supports new development.

“These impact fees increase the value of the property that’s being developed and in turn increase the overall property tax base, and that’s a positive correlation,” Hudson says. “Remember, a rising tide raises all boats.”

Properly developed new communities with the appropriate infrastructure make both homes and the community more valuable, which many view as beneficial for the consumer and the community.

Communities have learned to accentuate the positive when tackling construction issues. John Metzger of McDonald Hopkins Co. says he’s seen how a few judicious incentives can make for a win-win situation regarding the preservation of historic Florida buildings.

In the past, historic preservation has been a mixed bag for developers and property owners. Although having a property classified as historic and placed on the national register offers tax advantages, many drawbacks exist. Overall, the property is less versatile since change and renovation aren’t always possible. But Metzger says some cities have developed innovative ways to handle historic preservation — and in many cases, property owners come out ahead.

“I was recently involved in an incentive program which I thought was rather unique,” he says. “West Palm Beach passed an ordinance to encourage preservation of certain structures, mostly churches and other tax-exempt organizations that don’t have the normal incentives provided by historic preservation.”

Metzger says the program uses TDRs (transferable development rights) for construction, which permits owners of the historic property to sell to another developer the desired square footage they need. Thus, a building owner restricted to 10 stories could purchase TDRs to build an extra four or five stories. Used with success in the Northeast, the program encourages entry into historic preservation rolls, yet provides additional ways to bring in revenue. Metzger says many properties that would not have opted for historic classification were drawn in by the TDRs. And, since many buildings in the program were churches, the proceeds benefited the communities they serve. One company used partial proceeds from the sales of TDRs to construct a fine arts facility and athletic center for the church school.

Florida’s real estate mirrors its weather — hot, hot, hot. Despite the zooming cost of home ownership, the flood of people moving into the state hasn’t abated. Even if the housing bubble does burst, as some economists predict, it’s likely that Florida’s real estate will continue to hold its value.