In the thick of an affordable housing crisis that has taken hold across Greater Boston, city councilors have proposed levying fees on high-end real estate deals to help pay for more housing — part of a bold and controversial movement across the region to tax developers who have been profiting off of a historic building boom.
The proposal would set a tax of up to 6 percent on many commercial and residential sales over $2 million and establish a “flipping” tax of up to 25 percent on some properties that are sold twice within two years. It’s a bid to stem speculation and profiteering in Boston’s red-hot real estate market, the councilors say, and could raise anywhere from $175 million to $350 million a year.
“We are in a crisis,” said City Councilor Lydia Edwards, the plan’s lead sponsor along with Councilor Kim Janey. “That we are suffering in one of the biggest booms in the history of our city is unacceptable.”
The measure, to be filed Monday, would face a long road to approval. First it would need to win support in the City Council and be signed by Mayor Martin J. Walsh, whose administration signaled last week that it had its own housing agenda. Then, as a home-rule petition, it would go to Beacon Hill for approval by the Legislature, a complex and lengthy process that has killed many local housing bills before.
It is also bound to face stiff opposition from developers and real estate groups.
Tamara Small, chief executive of NAIOP Massachusetts, a trade group for commercial developers, said she hadn’t yet seen the specific proposals, but that taxes on sales, also known as transfer fees, are generally a clumsy tool to create affordable housing.
“From a policy standpoint, it’s not the best way to address this issue,” Small said. “If you continually add layer upon layer of requirements, when the market softens you’re just not going to be able to build anything.”
But Edwards and Janey are not alone in their push for transfer fees. Somerville last year sent to Beacon Hill a home rule petition for a 1 percent fee on many property sales. It died in the Legislature, but city lawmakers have signaled they will try again this year. In Cambridge, too, the City Council has approved a plan to study such fees, with an eye to sending a measure to the state for approval later this year.
“We’ve got to be bold,” said Cambridge Mayor Marc McGovern, a co-sponsor of the proposal filed by longtime Councilor Dennis Carlone. “We have an affordable housing crisis. We have a housing crisis in general. We’ve got to really start thinking about different ways to address it.”
Such fees exist in a handful of other cities. New York State has long had a “mansion tax” of 1 percent on home sales of more than $1 million, though New York City Mayor Bill DeBlasio’s efforts to boost it to 2.5 percent of sales above $2 million have so far fallen flat. Toronto taxes many home sales, with $2 million deals assessed a 2.5 percent tax. Pittsburgh assesses home sale taxes of up to 4.5 percent to fund city, state, and school budgets.
In Boston, where the population is expected to grow by roughly 100,000 and reach 759,000 residents by 2030, Walsh has made housing construction one of his top priorities and permitted new development at a rapid clip. Last year, he accelerated plans to add units to keep up with surging population growth (he set a goal of 69,000 by 2030, with income restrictions on 16,000 of them) and has supported a range of new fees and other programs to help fund more affordable housing.
Edwards’s and Janey’s proposal, which would exempt owner-occupants and sales between relatives from the new taxes, goes well beyond the housing agenda rolled out last week by Walsh. That plan included protections for elderly renters, legal counsel for tenants facing eviction, and greater flexibility in how much the city can make commercial developers pay for affordable housing.
Sheila A. Dillon, the mayor’s chief of housing and director of neighborhood development, had not seen Edwards’s proposal and said she could not comment on it, though she is familiar with the concept of a transfer fee and a “flipping” or speculation tax. But, Dillon said, the administration has moved forward with its own legislative package on Beacon Hill, with six bills that she says could generate revenue and establish protections for tenants.
“We are always open to hearing new ideas on how to make Boston more affordable and more livable,” she said, adding, “When we were putting together our bill package, we considered a lot of ideas, we had a lot of conversations, and our [bills] we thought have a very good chance of passage, so we are focusing on those first.”
Those measures, too, would need to win support on Beacon Hill. A tenant-protection bill backed by Walsh died in the Legislature last year, amid opposition from landlord groups.
State Representative Mike Connolly, a Democrat from Cambridge and Somerville, has proposed a statewide law that would allow individual municipalities to opt in with their own transaction fees, bypassing state approval. The proposal failed in last year’s legislative session, though Connolly says he sees growing interest from cities and towns and lawmakers.
“The sense I’m getting is the need for new tools to address this affordable housing crisis is real,” he said. “This is an option that can make a difference.”
Real estate groups warn the extra taxes could hurt efforts to boost affordable housing more than they help.
Building housing in Eastern Massachusetts, they say, is already hard, with land prices high and construction costs growing twice as fast as rents in recent years. Permits for new housing units in the region fell in 2018 compared to their 2017 highs, and Biria St. John, head of multifamily investment at real estate firm CBRE, told an industry group Thursday that he expects them to fall again in 2019.
And if projects are built with new higher taxes, it will likely be tenants, not developers and their investors, who ultimately foot the bill, said Greg Vasil, director of the Greater Boston Real Estate Board. “People are under the impression that the profits are so high on these real estate deals,” Vasil said. “They’re not. If you add a tax on, it likely gets passed along to the consumer.”
Still, recent years have been heady days in Boston’s commercial real estate market, with office buildings selling at record prices to global investors looking for a safe place to park cash and sellers pocketing huge profits.
Just last month, for instance, Swiss investment bank UBS sold 53 State Street — a downtown office tower that counts Hill Holiday, Acquia, and The Boston Globe among tenants — to a group of investors for $845 million, or 38 percent more than UBS paid to buy it in 2011. If a 6 percent transfer tax had been in place, the city’s take would have topped $50 million.
Those sorts of commercial deals, and high-dollar condo sales by investors and absentee owners, are the main target of the legislation, said Edwards, who crafted the bill after meetings with city officials and housing advocates.
“There’s no doubt in my mind,” she said, “we’re in a housing crisis. We have a problem. And we have advocates who are ready to go to the State House for this.”