Do Multi-Million Dollar Mansions Really Benefit Cities?


If you have ever picked up a real estate magazine or clicked through the HGTV television channel, you’ve surely participated in our culture’s fascination with extravagant homes. Whether this is a genuine curiosity, lust over wealth or some other trait that we have as humans, something has us spellbound by luxurious living.

And newspapers like to get in on this game, too. At the end of last month, South Florida Sun Sentinel published a story titled “By the numbers: The priciest tax bills for South Florida’s multimillion-dollar mansions” which looked at some of South Florida’s most expensive homes and what each is paying in property taxes. Several of these homeowners pay over $1 million in taxes each year. Surely these properties are “golden geese” for their cities… right? At Geoaccounting firm Urban3, we read the story and passed it around the office, and decided to #DoTheMath to see how these homes really compare on a pound-per-pound basis—tax value per acre—to others in the same communities.

South Florida Multi-Million Dollar Mansions

Author Lisa J. Huriash cited the seven homes in Figure 1 as paying some of the highest property taxes last year. The numbers range from over $300 thousand to more than $1.5 million. 

Figure 1. Click to view full image. (Source: Urban3)

But are these homes as tax-productive uses of land as their total tax bills make them appear? Dividing the property tax by property acreage yields the taxes per acre, as shown in Figure 2:

Figure 2. Click to view full image. (Source: Urban3)

The dollar amounts now start at $76 thousand per acre and peak at $525 thousand per acre. The next question is, “What is the property tax per acre for far more modest homes in South Florida?” Joe Minicozzi, principal at Urban3 and former City Urban Designer for the City of West Palm Beach, went looking in low and middle income neighborhoods to see what a normal home generates in property tax per acre.

South Florida Multi-Million Dollar Homes

Modest single family homes in the same communities as these mansions make for a good comparison. Figure 3 shows the total property taxes paid annually by eight small homes on small lots in “normal” neighborhoods of Palm Beach County.

Figure 3. Click to view full image. (Source: Urban3)

Crunching the numbers by acre reveals that, although the total values are ordinary, they are very productive in property tax given the amount of space they take up. Three of these homes even beat out one of the mansions from the Sun Sentinel article which clocked in at $76,000 per acre.

Figure 4. Click to view full image. (Source: Urban3)

Figure 5. Click to view full image. (Source: Google)

These homes provide an even greater financial benefit because in general, it is much cheaper to provide services to them. Built on narrow lots, these homes require fewer feet of roads, sidewalks, sewage pipes and utility lines than the mansions. In fact, one house which reels in $77 thousand per acre is on the narrowest street in all of West Palm Beach: Mango Promenade.

Mango Promenade is actually a pedestrian-only path which connects two rows of homes as seen in Figure 5. There is even a sign that reads, “NO ROLLER SKATING, BICYCLING, SKATE BOARDING.“ Residents can access their homes in cars via an alley that runs behind the houses.

Multi-Family Housing: The Real Powerhouse

If the tax productivity of modest single-family homes surprises you, consider how modest multi-family is several times more productive. Figure 6 shows the taxes per acre of four middle income complexes also in Palm Beach County: two in West Palm Beach and two in Delray Beach. The third most productive mansion and its taxes per acre are also shown for comparison. Each small apartment or townhouse complex is more productive than five out of seven of the mansions nearby.

Figure 6. Click to view full image. (Source: Urban3)

Sure, there are some mega-homes that are more tax productive than these common three-story complexes. But it’s still clear that the right path for a city that wants to bring in enough revenue to cover its services is not necessarily to try to lure the wealthiest residents with the biggest houses. Not even close.

Modest multi-family housing provides more tax bang for the buck than legitimate mansions with market values of up to $97 million. As crazy as that fact is, it gets nuttier.

What Are Homeowners Really Paying Relative to The Property’s Taxable Value?

Let’s contrast the single-family homes and mansions in one other way. We can calculate their actual taxes paid as a percentage of their total taxable value. We call this the “effective tax rate.” Using available data on total taxable value and taxes paid, we can calculate this rate, which includes all deductions, cuts or anything else that may affect the amount of taxes paid. Chart 1 and Chart 2 display these numbers for the seven mansions from the original article and the eight low to middle income homes.

 

Chart 1: Mansions

Property Address Total Market Value Total Taxable Value Taxes Paid Effective Tax Rate
935 HILLSBORO MILE $85,089,200 $58,847,360 $1,033,897 1.76%
5 HARBORAGE ISLE DR $33,683,460 $32,151,300 $583,455 1.81%
977 HILLSBORO MILE $22,596,710 $18,518,810 $326,134 1.76%
548 N COUNTY RD $97,106,478 $90,516,183 $1,535,783 1.70%
700 N LAKE WAY $74,293,195 $74,090,397 $1,223,716 1.65%
2000 S OCEAN BLVD $102,580,162 $53,996,755 $1,194,540 2.21%
3 INDIAN CREEK ISLAND RD $42,105,934 $42,105,934 $944,707.97 2.24%
Averages $63,597,567 $50,476,647 $6,842,233 1.88%
 
 

Chart 2: Homes

Property Address Total Market Value Total Taxable Value Taxes Paid Effective Tax Rate
231 NE 1st Ave $601,753 $568,186 $11,954 2.10%
214 Swinton $1,090,599 $1,090,599 $22,197 2.04%
325 S M Street $115,128 $115,128 $3,568 3.10%
322 Mango Promenade $446,993 $362,900 $8,630 2.38%
1504 Florida Ave. $502,068 $502,068 $11,313 2.25%
710 7th Street $303,497 $303,497 $7,455 2.46%
811 Division $36,951 $33,326 $970 2.91%
415 16th Street $139,991 $94,996 $2,412 2.54%
Averages $404,623 $383,838 $68,499 2.47%
 

Why is the Total Taxable Value different, in some cases, from the Total Market Value? The short answer is that Florida provides various property tax exemptions, including one for homeowners in their primary residence (a “homestead exemption” common to many states), and a cap on how much your taxable value may rise in a single year. The “total market value” is an assessor’s estimate of how much your home would sell for on the open market.

These charts might be overwhelming, but I am presenting all the information so you can know where I’m getting numbers from and check my math. The most important number in each chart is sitting in the bottom right corner. That is the average effective tax rate for each group of houses. As described earlier, this rate includes any deduction that may affect the real rate. It is calculated using this formula:

(TAXES PAID ÷ TOTAL TAXABLE VALUE) × 100% = EFFECTIVE TAX RATE

The multi-million dollar homes average is 1.88%. Compare that to the 2.47% that owners of average homes pay. The wealthiest people in these South Florida communities appear to be taxed at a lower effective rate than the lower and middle class in the same communities. We incentivize huge homes in a variety of ways, yet from the city’s perspective, huge homes on huge lots are not the secret to building a financially productive place. Not even close.

The point isn’t to blame these mansion owners. (As they say, “Don’t hate the player. Hate the game.”) As long as property owners abide by the law, they are good to go. The problem is that city officials see the large numbers from things like the Sun Sentinel story, and their eyes fill with dollar signs. It’s common for officials in places concerned about revenue to seek to encourage big, expensive single-family development. However, when we #DoTheMath, we see that building a block of modest single-family homes or mid rise apartment buildings can be at least as productive in property tax revenue, and this compact development pattern comes at a lower cost to service and maintain.