Why a real estate transfer tax is a bad idea

New tax would be another barrier to home ownership

ONE POLICY that has recently garnered attention on Beacon Hill is the real estate transfer fee: a de facto new sales tax on real estate. The idea would be to grant each of the 351 communities across Massachusetts new power to impose a sales tax on the sale or transfer of real estate to pay for affordable housing. As well intentioned as this policy may be, it is bad tax policy that actually causes more harm than good.

We at the Greater Boston Real Estate Board are not the only ones that believe this. The state Legislature has previously studied a sales tax on homes as a mechanism for funding affordable housing, but rejected it as inefficient for many reasons, including the fact that it is an unstable source of revenue.

We oppose this sales tax because it is regressive and discriminatory. Since transfer taxes are traditionally set at a flat rate, all individuals – from low-income to high-income – must pay the same rate. But how that rate actually impacts individuals can vary dramatically. Low-income individuals will have to pay a far higher share of their annual income because of the transfer tax, while high-income individuals will pay a far lower share of their annual income.

While implementing a transfer tax at virtually any time is inadvisable, doing so now would be especially damaging for homeowners, homebuyers, and the regional economy. Anyone looking to buy a home right now must deal with seriously low inventory, rising interests rates, and unprecedented prices. Adding another barrier in the form of a transfer tax would further burden an already-overwhelmed housing market, making it far too difficult for individuals or families to own their own home.

A transfer tax would also prove extremely harmful at a time when the future of the region’s business sector is so uncertain. Recent research has shown that remote work is here to stay in the Boston area. For instance, 96 percent of Boston business professionals recently surveyed believe that their work can be completed remotely. Furthermore, 57 percent would definitely or probably look for a new job if their employer did not offer a remote work policy. Simultaneously, the number of employees commuting to the office is one-seventh of what it was prior to the pandemic.

Given all of these facts, it is essential that city and state officials encourage, not discourage, businesses from calling this region home. Forcing businesses to pay a tax on real estate transfers will give them yet another reason to reconsider conducting business here. This must be avoided.

Fortunately, Massachusetts already has numerous tools dedicated to investing in affordable housing. One such policy is the Community Preservation Act (CPA). Adopted in 2000, the CPA grants voters the ability to decide for themselves whether to increase their own property taxes to fund affordable housing through a property tax surcharge of up to 3 percent. Communities can also issue bonds against their future CPA revenue stream. Property owners also pay to fund affordable housing at the Registry of Deeds, which funds a statewide Community Preservation Trust Fund available to local communities.

Establishing the CPA was an equitable and fair way to fund affordable housing, because community responsibilities should be paid for by the entire community. However, the proposed tax scheme is inequitable and discriminatory as it would single out a small segment of the population, specifically buyers and sellers of property, to pay for a community-wide need.

There is another policy worth embracing that aims to lower housing costs: the Housing Choice Initiative. Implemented just a few years ago, the Housing Choice Initiative takes multiple steps to encourage housing development across the state. It lowers the threshold of votes needed to enact zoning changes at the local level, and mandates that many municipalities build multi-family near public transit lines. This project has already led to the construction of more than 50,000 multi-family housing units, and is on pace to produce far more.

Meet the Author

Gregory Vasil

Chief executive officer, Greater Boston Real Estate Board
While the state must take serious, substantive steps to make housing more affordable in Massachusetts, passing a real estate transfer tax is not the way to go. Instead of implementing a plan that would hamper homebuyers and the regional economy, we should embrace proposals that have proven effective, and will grow in effectiveness over time.

Gregory Vasil is the CEO of the Greater Boston Real Estate Board, which has more than 13,000 members throughout Eastern and Central Massachusetts.