The proposal claims “Revenue raised through a real estate transfer fee would be required to be used for affordable housing purposes.” Unfortunately, that’s an empty promise at best. This proposal does not specifically require municipalities to use the funding to create new housing.
Revenues would be placed in a municipal affordable housing trust fund, which can be used like a community slush fund for any number of projects unrelated to new construction. Beyond that, the proposal does not establish any clear oversight or auditing practices to ensure that funds raised are flowing directly to the creation of new affordable housing.
A new sales tax on real estate would result in higher costs for developers, which would be passed on to renters in the form of higher rents. Existing market-rate housing would become even more scarce and expensive.
This proposed sales tax on real estate would actually reduce the availability of homes and we have the data to prove it. Multiple studies have shown that a sales tax on homes depressed the number of sales. To bring housing prices in line with household incomes, we need more homes on the market, not fewer.
Home sales are already at an all-time low, while home costs are at an all-time high. Massachusetts residents cannot afford to buy a home here and this proposal does nothing to fix it.
A homeowner’s greatest financial asset is typically their home. Retirees seeking to downsize and fund their retirements would see a larger chunk of their investment evaporate. Some may opt not to move at all, further exacerbating the lack of available housing.
The proposed tax on real estate would have an outsized impact on commercial properties and would undermine Beacon Hill’s attempts to encourage private investment and attract new companies to the Commonwealth.
It would depress an already stagnant commercial market, leading to fewer transactions and lower property tax revenue, which cities rely on to pay police officers and teachers. Simply put, it would be another nail in the coffin for areas hit hard by the pandemic, including downtown Boston.
Virtually every industry is facing a severe workforce shortage. Already a notoriously expensive place to live, Massachusetts would become even less affordable, and this proposal would discourage workers from moving in and encourage existing workers to continue the mass exodus from the Commonwealth.
Last year, permits to build new units in Greater Boston bottomed out, falling to their lowest level since 2012. In Boston, production was down 46 percent in the first 9 months of 2023 compared to the same period in 2022. Developers who are bogged down by high costs and red tape are hitting pause on any new projects.
The only way out of this crisis is to increase our housing supply. And don’t just take our word for it. A study released by MIT in 2023 found that new housing complexes decrease rents in nearby units by as much as 6 percent.
Increased taxes on real estate purchases would add fuel to an already precarious situation and do nothing to reverse these historically low rates of production.
A new sales tax on real estate is not a predictable revenue stream and is entirely dependent on market conditions. Affordable housing construction is rarely completed in a single fiscal year. That means cities and towns would need to effectively forecast real estate market conditions over a series of years to be able to truly budget for affordable housing construction. Most communities can’t look beyond the current year or two and few have real estate market experts on staff.
The Community Preservation Act (CPA) creates a local property tax surcharge of up to three percent with a state funding match. It has generated over $2.5 billion in funding that could have been allocated to affordable housing. However, only 53% of communities currently use the CPA. As of the latest fiscal year, 70 CPA communities spent less than the requisite amount of CPA dollars on housing.
The MBTA Communities Act, which requires communities in the MBTA’s service area to allow multi-family units to be built near public transit stops, has not been fully implemented by the affected communities. The state should focus its attention on getting communities in compliance with the law before giving them new ways to levy taxes on residents.
Funds raised by this new sales tax would be deposited in a community’s municipal housing trust. Municipal housing trusts are typically opaque bank accounts kept separate from the general municipal budget. Unlike a municipal budget, housing trusts are controlled by a board of trustees – not an elected public body like a City Council or Select Board. And unlike municipal budgets, it is often difficult, if not impossible, to find the operating budget of a municipal housing trust on any given city or town website. More money would be flowing into these trusts which we the public cannot freely monitor.
Greater Boston Real Estate Board
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