Massachusetts is wading into the national debate over the inexpensive housing crisis with a proposal to tax high-value home sales.
Gov. Maura Healey’s $4 billion Housing Bond Act, the state’s largest-ever investment in its housing stock, features a provision that permits cities to impose a transfer fee of 0.5% to 2% on property sales of greater than $1 million. The revenue generated would flow into inexpensive housing projects.
The initiative reflects a recent measure spurned The initiative, chosen by Chicago voters, has sparked debate amongst local governments, housing advocates and critics who fear it should drive down home sales and place even greater burdens on real estate developers combating record-breaking office emptiness rates.
Advocates, including Boston Mayor Michelle Wu and leaders of greater than 15 other municipalities, see the transfer fee as a critical tool to handle the growing shortage of inexpensive housing. State Housing Secretary Edward Augustus says Massachusetts needs 200,000 more homes to maintain up with population growth.
“This policy is a win for local governments, but most importantly, it is a win for renters and homeowners who have otherwise been priced out,” Augustus said in an emailed statement.
Critics argue that the extra tax would burden business real estate developers who already face high vacancies, particularly in office buildings, and could lead on to a decline in overall real estate tax revenue. Office space emptiness rates are rising in Boston, Cambridge and surrounding suburbs because the distant work trend continues. Occupancy within the Boston office market has reached its lowest level since 2010, based on Colliers’ first-quarter market evaluation.
“If you raise the tax, it will go down even further,” said Greg Vasil, head of the Greater Boston Real Estate Board. “How can this be beneficial?”
Meanwhile, supply within the housing market stays tight as rising rates of interest discourage homeowners from selling. The average home sale price in Massachusetts rose greater than 9% in March in comparison with a yr ago, while the variety of transactions fell nearly 8% Data from Redfin Corp.
The state housing authority estimates that a 2% statewide transfer fee could have raised about $784 million in fiscal yr 2022, with greater than half of that coming from business sales.
“Commercial property owners are in big trouble right now,” said Evan Horowitz, executive director of the Center for State Policy Analysis at Tufts University. “Even though their properties are valuable, they are not profitable. And they are in a bad payment situation.”
Similar concerns played a task in voters’ rejection of Chicago Mayor Brandon Johnson’s tax proposal earlier this yr. That halted a plan that his government said would raise $160 million a yr to finance the development of more villas Houses.
Meanwhile, Los Angeles’ year-old real estate tax – which added a 4% to five.5% fee on property sales over $5 million – fell in need of forecasts and failed to herald a whole bunch of thousands and thousands of dollars in expected revenue a. The Biden administration is offering another approach to improving housing affordability shot in on closing costs and extra fees, especially title insurance.
The debate comes amid calls for budget constraints in Massachusetts. While April tax revenues exceeded forecasts by greater than $1 billion, the windfall got here primarily from capital gains and the recently introduced millionaire tax of 4% on income over $1 million. Meanwhile, corporate and business taxes proceed to perform below average.
Negotiations on the state budget moved from the House of Representatives to the Senate passed a spending plan of about $58 billion for the fiscal yr starting July 1.
Massachusetts House Speaker Ronald Mariano said the Legislature could take up the housing bond bill next, with debate starting as early as this month, based on State House News Service.
Despite these concerns, cities view the property transfer tax as a invaluable tool. Provincetowna coastal town on the tip of Cape Cod, has been advocating for such an option since 2010.
“We have families who have lived here for generations and may be considered cash rich but cash poor,” Provincetown City Manager Alex Morse said. “Many incoming buyers can afford the transfer fee, which could then be passed on to our housing fund to incentivize the development of affordable housing and launch programs for housing security, psychological assistance and the creation of new housing units.”
In Easthampton, Mayor Nicole LaChapelle is raring to come to a decision on the transfer fee. If the availability is implemented, she believes the town could see improvements almost immediately.
“I would contact my local council directly and we would begin looking at this transfer tax, particularly as it relates to affordable housing,” she said in a telephone interview. “I’m keeping my fingers crossed for that.”
