Kurt Thompson

You don’t have to be an avid watcher of what’s going on at Beacon Hill to know that the state legislature is taking on multiple housing issues this session. In addition to finally considering Gov. Charlie Baker’s Housing Choice Bill to simplify approvals for housing production, the legislature is considering a transfer tax to fund affordable housing. While Realtors are strong supporters of affordable housing, the proponents are going back to the “Well of Bad Funding Sources” to try to pay for it. 

For as long as these sales taxes on homes have been proposed, the Massachusetts Association of Realtors has opposed them. The reasons for our opposition are always the same regardless of the market: Transfer taxes increase the cost of buying or selling a home. And in our current market, where we have been experiencing a housing affordability crisis for several years, the increases are especially acute. Transfer taxes also undermine the basic tenet of fairness in tax policy, and they’re an unstable revenue source.  

Transfer Tax Raises Up-Front Costs 

So, how do these proposed sales taxes on homes increase the bottom-line price of buying a home?  

A transfer tax is a sales tax. It increases the price of the good or service being purchased. In this case, that “good” is a house, which is typically the most expensive purchase we make in our lives. Even a 2 percent tax (which is the maximum amount currently being proposed in H.1769) would add thousands of dollars more to the cost of the home. Unlike loan closing costs that can be rolled into a mortgage and paid off over 30 years, taxes cannot be financed. Adding one more cost barrier that buyers need to get over in order to purchase a home in our state. 

It’s not just the home buyer who is affected by increased costs caused by transfer taxes. These cost increases carry over to rentals, where they are passed along to tenants. Having to pay more in taxes also harms the local economy by diverting funds that new homebuyers would otherwise use to improve their homes and properties.   

We believe that a community-wide good is the responsibility of the entire community and should be paid for by the entire community and not just a small subset.

Why are these proposed sales taxes on homes unfair in terms of tax policy? In many instances, the projected revenue from the sales tax goes to fund a community-wide good. In this latest effort it’s affordable housing, but it could be a water treatment plant, open space, etc. In some instances, there is no other reason than to build up the general fund. Our main problem is that the community-wide goal of the sales tax is only being funded by a small percentage of the community. In this case, it’s homeowners. We believe that a community-wide good is the responsibility of the entire community and should be paid for by the entire community and not just a small subset. 

Finally, because of the current lack of homes for sale, we’re seeing home prices at all-time highs. However, you don’t have to look too far into the past to see a market where prices were in free-fall. Any Realtor who has been in the business for any length of time knows first-hand that real estate markets are cyclical, and prices go up and down. This basic principle of the real estate market is why transfer taxes do not make for stable funding sources. Despite this fact, cities and towns still think transfer taxes do.  

The Bill – H.1769 
An Act Supporting Affordable Housing with a Local Option for a Fee to be Applied to Certain Real Estate Transactions is more than just a simple local option bill. While the title of the proposed legislation says “fee,” it is actually a tax. Fees are charged to cover or offset the costs of a good or service. Taxes are different; they are charged to generate revenue. The homeowners affected by this bill will receive no good or service for their payment. Instead, they will have to pay a sales tax to raise revenue for cities and towns. Additionally, this legislation would extend the state’s taxing authority to cities and towns and permit them to impose a new sales tax on property.  

Again, we need affordable housing but forcing home buyers and sellers to be the sole direct funders of an affordable housing trust fund is not equitable. This tax could be the difference between modest profits, breaking even or being underwater on what, again, is likely the largest investment that most of us will make in our lives.  

As long as sales taxes on homes are proposed, Realtors will demonstrate why the transfer tax bucket in the “Well of Bad Funding Sources” doesn’t hold water. However, we would much rather work together with our elected officials to find funding sources that are both equitable and stable to pay for these community-wide needs.  

Kurt Thompson is the 2020 president of the Massachusetts Association of Realtors and a broker with Keller Williams Realty - North Central in Leominster.