Saturday, April 29, 2006

What's Wrong with the Housing Bank Property Transfer Tax?

I was recently interviewed for an article regarding the sometimes heated debate and mixed emotions concerning the proposed Property Transfer Tax that would effect all sellers of properties valued above $750,000. Instead of just publishing my comments I am providing the article in its entirety.

Transfer Tax Proposals Face Fierce Opposition
Realtors Battling Initiatives in Four Communities; Most Martha's Vineyard Agents Voicing Support
By Aglaia Pikounis for Banker & Tradesman – Week of April 3, 2006

BAY STATE REALTORS state realtors are in the midst of battling four commu­nity proposals to charge consumers trans­fer taxes when they either buy or sell a home.

Realtors have fought transfer tax in the past, arguing that taxes that single out a par­ticular group – namely home-buyers and home sellers – are inherently unfair and discriminatory.

"Local transfer taxes are an in­equitable funding mechanism for community-wide responsibilities, whether it be acquisition of open space or the creation or mainte­nance of affordable housing," said Stephen Ryan, general counsel and government affairs director for the Massachusetts Association of Realtors. These are commu­nity responsibilities."

Transfer taxes pop up from time to time as cash-strapped cities and towns struggling with budget shortfalls by to find new ways to generate revenue.

Unlike other transfer tax pro­posals that seek to alleviate local budget woes, however, Manilas Vineyard wants to charge home sellers a 1 per­cent tax to fund affordable hous­ing. A home rule petition already has been filed and last month the state Legisla­ture's Revenue Committee re­ported favorably on it, referring the measure to the Senate Ways and Means Com­mittee.

The island, along with Nantucket, already imposes a 2 per­cent tax on homebuyers that is placed into a Land Bank for the acquisition of open space.

While those in the real estate industry are generally opposed to transfer taxes, the Martha's Vine­yard proposal has won the sup­port of the majority of Realtors on the island, according to support­ers of the tax.

"We have a crisis here. We are losing our young people. We are losing our middle class," said Candy DaRosa, an agent with Karen M. Overtoom Real Estate in West Tisbury who supports the measure.

Members of the Martha's Vineyard Hous­ing Bank Coalition say the .transfer tax would be a good way to raise funds for sorely needed affordable housing. DaRosa said unlike other transfer tax proposals, the Vineyard tax is different because it would be used for housing.

"The problem is housing and we're find­ing a way to make housing the solution," she said. "This is about a stable, affordable roof over your head."

All six towns on the island approved the creation of a housing bank, which would provide money for affordable housing, last spring. The housing bank would be funded through the 1 percent transfer tax. Under the proposal, "homeowners selling homes under $760,000 would be exempt, and only the portion of a sale price exceeding $750,000 would be taxed. For example, on the sale of a $1 million home, only $250,000 would be taxable.

The median price for a single-family home in Dukes County last year reached $650,000 - the second-highest median sin­gle-family home price in the state, according to statistics from The Warren Group, parent company of Banker & Tradesman. Only Nantucket's median home price, which ex­ceeded $1.4 million last year, was higher.

Yet, the median income for a family of four in Dukes County, $60,400, is 30 percent below the state average. Incomes have clearly not kept up with soaring housing costs on island, the tax supporters argue.

"There's always a misperception about people who live and work here - about them being well-to-do, and it's just not the case," Richard J. Leonard, president of the Martha's Vineyard Cooperative Bank and a leader of the island's housing coalition, told Banker & Tradesman several weeks ago.

Leonard pointed out that median income rose 17 percent between 2001 and 2004 in Dukes County, while housing costs sky­rocketed 114 percent during the same pe­riod.

‘A Very Selective Tax'
But opponents say the transfer tax is not an appropriate solution.

"We're trying to create affordable hous­ing for people who are still going to be poor," said Peter Fyler, an exclusive buyer's agent who owns SplitRock Real Estate in West Tisbury. "You're going to give them a place to live, but they're still going to be, struggling with other living costs."

Fyler said the tax would affect nearly every property on the island, since most homes that are listed for sale are valued at over $750,000. . . .

If there is an interest in creating more low-cost housing, Fyler said, local officials should consider setting aside money from the Land Bank for housing.

"The coffers of the Lank Bank are so rich and so deep, why don't they adjust the fee that goes into the Land Bank and give up a percentage ... for affordable housing?" he said. "We're looking for space for affordable housing and yet we've taken a lot of space for conservation."

And some opponents also point but that four towns on the island already have ap­proved the Community Preservation Act, a property tax surcharge that is used for af­fordable housing, open space and historic preservation projects.

If state lawmakers and the governor sign off on the home role petition for the trans­fer tax, the measure would still have to re­ceive a majority vote from all six towns on the island.

While the Massachusetts Association of Realtors testified in opposition to the Martha's Vineyard tax proposal at a State Housing hearing in January, leaders of the Cape Cod & Islands Association of Realtors have not taken a position.

Henry J. DiGiacomo, chief executive offi­cer of the Cape Realtor association, said the group decided not to take a stance because there is neither overwhelming support nor overwhelming opposition for the tax from Realtors on the island.

"We didn't feel like we had enough infor­mation," he said. "We're trying to be re­spectful of our members and to the unique needs of our members."

But the organization has voiced strong opposition to a transfer tax proposal in 'Chatham. In that town, selectmen endorsed a Town Meeting article in mid-March for a 1 percent real estate transfer tax on home-buyers to pay for the upgrade and expan­sion of its wastewater treatment system.

The article, if approved at Town Meeting on May 8, would proceed to the state legis­lature.
"One percent sounds like nothing much at all, but ... transfer taxes are unfair and bad public policy," said Keith Bradley, a Re­altor with The Real Estate Co. in Orleans.

Bradley said transfer taxes are an unreli­able source of income, subject to the ups and downs of real estate cycles, and home-buyers can't finance them.

And transfer taxes, opponents argue, ulti­mately end up driving housing costs up.

The median price for single-family home in Chatham was $775,000 last year, accord­ing to The Warren Group. If the tax were in effect, half of the 212 buyers who pur­chased a home last year in Chatham would have faced a tax bill of more than $7,750.

"Some people make it sound like it's an initiation fee, that if you really want to be in Chatham you're willing to pay this," Bradley said.

But Bradley said homebuyers have other desirable towns to choose from, and trans­fer taxes could drive prospective pur­chasers, including second-home buyers, to other communities.

Nantucket also has filed a home rule pe­tition because island leaders want to charge 0.5 percent on homebuyers, on top of the 2 percent tax they pay for the Land Bank, to pay for a wastewater treatment facility.

The home rule petition was referred to the Legislature's Joint Committee on Munic­ipalities and Regional Government, which decided last month to study the issue.

Joining Chatham, Martha's Vineyard and Nantucket, officials in Westwood are also exploring whether to impose a 2 percent tax on buyers for capital projects and school maintenance.
Local Realtors are "alarmed" by the tax idea, which they feel is bad and regressive, according to Joseph Delaney, a broker with RE/MAX Landmark Realtors in Westwood.

"Inherently, it's a very selective tax," he said.

Delaney said homeowners in Westwood already face steep property taxes. The tax would add an additional burden for first-time buyers who are struggling to afford a home, as well as senior citizens who may want to sell their larger homes, and purchase a smaller residence in town, he added.

The median price for a single-family home in Westwood was $595,000 last year. That means that in half of the transactions that closed last year, homebuyers would have had to pay nearly $12,000 if the tax were in place.

Delaney noted that Westwood, and other towns, can find other ways to increase rev­enue, including passing an override of the state's Proposition 2? property tax cap.

MAR organized a meeting of local Real­tors recently to discuss the issue.
"People who came to the meeting were very concerned about the negative impact that the transfer tax would have," Delaney said.