Florida nearly tripled its tax break for homeowners, blowing an $11.8 billion hole in county budgets.

Under the measure, Amendment 3, the tax break for homeowners, known as the homestead exemption, would increase from US$51,400 currently to $150,000 in 2027 and increase again to $250,000 in 2028. By shielding more of a home’s assessed value from tax, this exemption effectively reduces tax bills owners. New Florida residents purchasing a home would also be eligible for property tax relief, but in a more gradual manner.

But this measure comes at a high price. The Florida Legislature’s research arm estimated the measure would reduce annual property tax revenues by $11.8 billion. This translates to a 30% reduction in revenue for Florida counties and 13% for small municipal governments.

Although homeowners will receive some relief, the budget crisis from declining tax revenues will affect other Floridians more negatively. As economists who have followed the debates over Amendment 3, we argue that local governments will struggle to fund basic services with less money. And we also expect more serious economic consequences – including less affordable residential housing and a broader shift in the tax burden from relatively wealthier homeowners to those who are less well off.

How Amendment 3 would work

Much of the political momentum for Amendment 3 came from the rising cost of living and frustration with rising property taxes. These now average just over $3,000 a year, but can be much higher for Floridians with more expensive homes.

In addition to increasing the property tax exemption, Amendment 3 lowers the cap on annual assessments on rental and commercial properties from a 10% increase to a 5% increase. Since property taxes are based on the assessed value of an asset, this language effectively limits, but does not preclude, tax increases for businesses.

So landlords, for example, could still see significant annual tax increases as the value of their properties rises — costs that would likely be passed on to renters.

Amendment 3 makes clear that school-related property taxes are exempt from these tax reductions. It also lists some theoretical limits on how local governments should use taxpayer dollars, to ensure continued funding of essential services such as public safety, infrastructure or employee retirement benefit obligations.

But it also states that funds can be used for “approved expenditures” by local and county governments – ambiguous wording that suggests those stipulations can be violated.

Who pays the bill?

Florida property taxes are levied and collected by approximately 640 local government entities. There is no state income tax, so any reduction in property tax revenue directly affects local and county governments.

With reduced tax revenue, businesses, homeowners, and owners of other nonresidential properties, such as second homes, would almost certainly see their taxes increase. This is a typical pattern: when governments reduce property taxes for some groups, taxes are shifted to other groups.

This dynamic is likely to play out with local governments trying to keep revenues steady: Amendment 3 would force them to raise taxes in other areas to make up the deficit. This could include increases in state and local sales taxes, an expansion of the list of products subject to sales taxes, or an increase in “documentary stamp taxes,” which are required on documents such as deeds, bonds and mortgages.

State and local governments could also impose higher fees for specific services, such as solid waste treatment and stormwater services. Another option is to increase permit and inspection fees, fuel taxes, or other service fees such as vehicle registration fees.

Finally, local governments could increase tourism-related taxes, such as on food, drinks and hotels. But this remedy would not help counties with limited tourism, and that revenue fluctuates anyway.

Ultimately, however, essential services would almost certainly be affected. Funding for police, fire, and emergency medical services is primarily the responsibility of local governments, and for most counties, they constitute the largest item in their annual expenditures. Reducing property taxes would have a direct impact, especially in smaller, less populated counties.

And if local governments raise sales tax rates as much as they can, low-income Floridians will bear a disproportionate burden because they will spend a much larger share of their income on consumption. They are also much more likely to rent than own a home, so any increase in rents would have a heavier impact.

A looming affordable housing crisis?

What has been less noticed in the debate over Amendment 3 is how it would affect the state’s shortage of affordable housing. We argue that the structure of the property tax reduction will likely provide more incentive for counties and developers to build commercial structures rather than more residential housing.

When developers build residential housing, they need a base level of utilities to support residents and local infrastructure. In fact, in much of Florida, property taxes effectively subsidize residential housing development: for every dollar a homeowner pays in property taxes, it costs county governments about $1.20 to provide these services. This gap will only grow when property tax revenues decline.

From the perspective of local governments and counties, it may therefore make more sense to focus on commercial or industrial construction in order to keep tax revenues stable. But with less housing built at the expense of business construction – from manufacturing to data centers – the squeeze on supply will only increase prices and rents for the workers those jobs need.

Now that Amendment 3 has passed, Florida’s counties and local governments will face major compromises. We believe state officials will realize how much change there is and how quickly their priorities may need to shift.

This article has been corrected to note that the current homestead exemption is $51,400 and that new Florida residents purchasing a home are eligible for property tax relief on a graduated basis.

Portions of this article were published in an earlier article published July 30, 2026.

Abigail Hall, economics professor, University of Tampa and Aaron D. Wood, associate professor of economics, University of Tampa

This article is republished from The Conversation under a Creative Commons license. Read the original article.