Policy Order #1 on the Council’s Feb. 29 agenda proposes a Municipal Transfer Tax Ordinance that would apply to all real estate transactions of $1 million and above. The order, which comes from Councillor Tim Toomey, does not specify the amount of the tax, but it does suggest that the tax be assessed on a sliding scale and that all proceeds be directed to affordable housing initiatives.
Increasing the supply of and access to housing that is affordable to low, moderate and middle income residents is a very high policy priority. A municipal transfer tax, which would be in addition to the State’s real estate conveyance fee of $4.56 per thousand, would require State approval, either through a home rule petition or enabling legislation — so this would be a major undertaking for both the Council and our state delegation.
There are many approaches to structuring transfer taxes. Somerville is considering a 1% transfer fee on all real estate sales (commercial, industrial and residential) with exemptions for first-time buyers and on intra-family sales and with the proceeds going toward affordable housing. New York State has a 1% “mansion tax” for residential sales over $1 million that is paid by the buyer. San Francisco voters rejected a 2014 ballot measure to impose a tax designed to penalize real estate speculation (“flipping”).
I do not know the total of all real estate transactions of $1 million and up, so I cannot estimate the potential revenue such a tax would generate. Of the 25,612 parcels listed in the assessor’s database, 5641 (22%) are assessed at $1 million or above. In 2015, residential sales alone generated about $699 million; the median residential sale price was $695,000, and the average was $888,034. Levying a transfer fee on the sales of commercial and industrial properties has the potential to generate considerable revenue.
I’m very interested to hear what you think about this proposal, and any suggestions for how to structure a transfer tax so that unintended consequences are minimized. Is $1 million the right threshold? Should the tax apply to all sales on a sliding scale? What exemptions are most appropriate? Please comment here.
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Jan Devereux City Councillor Cambridge, MA