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Tenants Suffer as Higher Taxes Force Landlords to Raise Rents
By Dale White and Michael Braga
SARASOTA COUNTY -- Like much of this area's work force, Dee Manigo rents her apartment. During the past five years, her rent has stayed pretty much the same, rising by a little more than 1 percent each year.
That could soon change.
Manigo's landlord, faced with a 60 percent tax increase on the condo he rents her, says he can't swallow the rising costs anymore.
To stay in business, he may make tenants pick up more of his swelling tax bill. Their monthly rent hikes could be $50 or more.
If it comes to that, Manigo, a family advocate for the Head Start preschool program, says she doesn't know how she'll come up with what could be another $600 or so for housing expenses next year.
"You scuffle to pay your rent," Manigo said. "But you've also got to think about lights, about water, about a car. I want to go back to school and get a degree in early childhood education. I don't want an eviction notice."
Manigo, like renters across the state, sits on the cusp of what could become one of the largest increases in home rental prices in Florida history.
"We've just been through an historic increase in real estate prices. I see no reason why we wouldn't see an historic increase in rents," said Marvin Rose, president of Rose Residential Reports in Tarpon Springs. "It will be caused by a limited supply of rental units, coupled with rising costs."
The most onerous cost facing landlords is property taxes. Unlike full-time homeowners, landlords aren't protected from massive increases.
Residents who own their own homes are protected from tax hikes by Save Our Homes, the constitutional amendment that assures property values used to determine taxes can't increase by more than 3 percent each year.
In each of the past few years, however, a typical Florida landlord saw his tax bill increase by 15 or 20 percent.
Until recently, many landlords had not passed on the increased costs to their tenants because market forces kept them from raising prices. But taxes have increased so much, so fast, that many landlords are selling their properties, restricting supply and giving the remaining landlords more latitude to raise rents.
"Are we reaching a crisis?" asked Jack McCabe, a real estate industry analyst based in Deerfield Beach. "We definitely are in South Florida, and there's no doubt renters are feeling increasingly uncomfortable in Sarasota, where prices of ownership and rentals are skyrocketing."
In Sarasota County, the average rent on a one-bedroom apartment has increased 19 percent, from $517 in 2000 to $616 today, according to a County Commission study.
Already, evictions are on the rise.
According to the Sarasota County Clerk of the Circuit Court's office, the county had 1,487 evictions in 2003. By 2004, the number had climbed to 1,823. As of July, this year's figure had reached 1,215.
By bestowing special status on resident homeowners, Save Our Homes has created a system that punishes renters -- often those least able to pay -- with a higher tax burden.
The inequity looms larger every time real estate prices go up.
"This is putting a lot of people in jeopardy," said Debbie Smith, a fast-food worker who relies on her paycheck and her husband's disability to pay their $800 rent. "I don't see how they can afford even another $35 or $60 a month with the cost of living already the way it is."
Selling out
The Sarasota Landlords Association predicts that at least 20 percent of the rental stock in Sarasota County will be sold off in the coming year.
Fred and Rosemary Stovall are ahead of the curve.
They sold the Lemon Tree Apartments on Hyde Park Street in Sarasota for $1.9 million in May, netting about $1 million more than they paid in 1996.
"Our taxes went up from $16,000 to $24,000 and were set to go up again next year," Fred Stovall said. "It was forcing us to price our units out of the reach of some people."
Stovall, who had been renting apartments for $550 to $650 per month, would have needed to raise rents at least $100 to make up for two years of tax increases. But when tenants got wind of the potential increase, they began moving out.
Benedita Moyer, a professional nanny with more than 25 years' experience caring for children in Southwest Florida, said she was already spending 40 percent of her salary to rent her one-bedroom apartment. A $100 increase would have driven monthly payments to half her income.
Not willing to take that risk, Moyer gave up her independence and rented a room from a friend.
"I would have to take two jobs to afford anything else in the area," Moyer said.
Mike Geenen owns six rental houses in north Sarasota, west of U.S. 41. In the past three years, the total taxes on those homes increased 170 percent.
"I may have to sell a house to pay the taxes," Geenen said. "This is unbelievable. My blood pressure is sky high over this. I have no money left for maintenance."
In an area where wages rise about 3 percent annually, some landlords are considering rent hikes of 10 percent or more this year just to keep up with escalating property taxes.
"We're being squeezed between these taxes and our tenants' ability to pay," Sarasota landlord Al Holmes said. "The incomes are not going up. But we have to keep charging more and more to break even. The tenants aren't happy. So, we're caught in the middle."
Supply and demand
Rising taxes mainly affect investors who purchased rental properties in areas rapidly appreciating in value.
This pool of investors expanded greatly after the stock market bubble burst in March 2000. Real estate was seen as undervalued, and investors poured money into buying houses, driving up real estate prices with every purchase.
Property taxes rose just as quickly, but landlords found it difficult to pass additional costs on to renters.
The problem was that so many investors bought rental properties that the supply increased dramatically at the very moment historically low interest rates were convincing traditional renters to become homebuyers.
Faced with a glut of rental properties, landlords lowered rents to keep their properties occupied.
"We saw rents drop by as much as $200 to $300 a month, said Scott Corbridge, president of Sarasota Management & Leasing.
But Corbridge, who manages about 150 rental properties in Southwest Florida, said supply and demand conditions began changing earlier this year.
"Rents seem to have hit bottom and have begun to turn around," he said.
Housing prices are a factor.
This summer, the median price for a home in the Sarasota-Bradenton market hit $333,900 -- a 32 percent jump over the previous summer's median price, $253,600.
Prices of homes have gotten so high that renters can no longer afford to buy them. So demand for rentals is increasing.
At the same time, investors are becoming more reluctant about speculating on real estate, and some are starting to sell.
"It's easier to buy and flip (quickly sell) properties now" than make a living in rentals, said Sarasota landlord Roy Middleton, who has no interest in expanding his stock of 12 rentals. "I haven't kept the last five houses that I bought."
If a sharp rise in interest rates was added to the mix, rents could be driven up even further, according to Harvard University's Joint Center for Housing Studies. That's because higher interest rates would keep more people from buying, forcing them to rent instead.
Condo conversions
Another factor contributing to a run-up in rents is the condo conversion craze that has swept the country during the past two years.
In Miami-Dade County, more than 10,000 apartments have been converted to condominiums during the past 18 months, according to McCabe Research & Consulting.
Approximately 3,000 apartments have been converted in Sarasota County in the same period, while investors in Manatee County are in the process of converting about 2,000 more.
The conversions are making it harder for renters to find a place to live and are driving up rents.
"We're projecting a 3 percent increase in rents for 2005," said Dave Watkins, president of Tampa-based Greystar Management Services, which manages 10,000 rental units across the state. "We could increase them more, but we don't want to gouge tenants."
Watkins added that the condo conversion trend could force rents up further next year. That's because county appraisers are likely to dramatically increase assessments -- and therefore taxes -- on apartment complexes. The assessments will rise because the sale prices of such properties across Florida have increased.
"The prices people are paying don't make sense anymore," said Charles Hackney, Manatee County's property appraiser.
"Apartment complexes are being sold for twice their assessed values."
Impact on the poor
As more rental units are converted to owner-occupied homes, low- to moderate-income renters find themselves priced out of town.
In Park East, a working-class neighborhood in north Sarasota, one-bedroom apartments that rented for $550 a month last year have since sold as condos for $139,000 to $165,000, according the Sarasota Landlords Association. Buyers would need incomes in the $46,000 to $55,000 range to afford those homes, according to real estate agents' guidelines.
As of December, the average pay in Sarasota County was $33,355.
"How is a working person making pizzas, fixing cars, going to afford a one-bedroom home in this town?" asked Tully Giacomazzi, a Sarasota landlord who rents to working, lower-income tenants.
To make ends meet, more and more renters are sharing accommodations.
Jesus Diaz, a telephone company laborer, relies on a five-income household to rent a house for $1,300 a month. His wife, a fast-food worker, and his three brothers all contribute.
"I know of some (rental) houses with as many as eight adults in them," Diaz said.
Fed up, the Sarasota Landlords Association is calling for tax breaks on rental properties for low- to moderate-income tenants. The 900-member organization also wants a voice in ongoing discussions by city and county officials about the area's shortage of affordable housing.
Sarasota Mayor Mary Anne Servian said tax relief has to be considered and soon.
"This is an emergency," she said.
If they can't get a tax break, landlords say they won't be the ones to suffer. They can sell their properties and come out ahead.
"This dilemma ends up being put on the back of these tenants," Giacomazzi said. "That's who is ultimately going to pay the price.