Bill Tanski
Taxachusetts is back with a vengeance. The Tax Foundation’s 2024 State Business Tax Climate Index shows the commonwealth has fallen 12 places from last year, all the way to spot 46 out of 50. The state’s millionaire’s tax combined with other existing fees has made it even more difficult to do business in Massachusetts.
Unfortunately, instead of focusing on reforms to address this, the Healey-Driscoll administration is pursuing a policy that will further damage the state’s competitiveness: a new tax on home and building sales.
As part of her recently unveiled housing bond bill, Gov. Maura Healey proposed implementing a transfer tax on real estate in an effort to finance the construction of more affordable housing. The tax would hit owners who sell their properties sold for more than $1 million or the county’s median sales price – whichever is greater – and would range from half a percent to 2 percent on the portion over $1 million or the county median sales price.
The tax would deal an especially big blow to commercial building owners who are already struggling with high interest rates and vacancies.
Currently, high supply costs, labor costs and interest rates are making it next to impossible to renovate, buy or sell office buildings. Simultaneously, many businesses are giving up or downsizing their office space as they adopt longer-term remote work options, placing commercial property owners in a seriously difficult position.
Take for example the recent sale of an office building located at 186 Lincoln St. in Boston. The building sold for $11 million – just barely half over what the owners paid for it in 2015. If the proposed transfer tax of 2 percent were in place (as Boston officials would like) the owners would lose an additional $200,000 on the sale.
Decreasing commercial sales and driving down property values will not only harm owners, but – in the case of Boston – the entire city. Nearly three quarters of Boston’s budget is funded through property taxes, meaning that the city depends on steady property values to pay teachers, police officers, transportation officials and more. To ensure that all city services continue to function reliably, passing a transfer tax during this deeply unsteady moment in the commercial real estate market should be the last thing on leaders’ minds.
Better Tools for Laudable Goal
The goal of a transfer tax – to increase affordable housing stock – is laudable and necessary, as Massachusetts cannot become more competitive if it remains unaffordable.
Instead the state should focus its energy on other aspects of the governor’s housing bond bill, which proposes a nearly $2 billion investment in new construction and rehabilitation, as well as the HousingWorks Program, which aids municipal infrastructure efforts to drive denser housing creation. In time, these programs will boost overall housing stock and lower costs throughout the region.
The commonwealth should also bolster existing programs previously created to help alleviate an affordable housing shortage. For example, since its passage in 2000, nearly 200 cities and towns have implemented the Community Preservation Act (CPA): a policy meant to help communities invest in affordable housing, historical preservation and open space via a property tax surcharge.
However, as a Tufts Center for State Policy Analysis report noted earlier this year, nearly one-third of CPA communities have not invested the legally-required 10 percent minimum in affordable housing since adopting the program. Additionally, communities have invested funds in a housing trust, with little to no explanation as to when – or if – those funds will be spent.
To make the most of reforms such as the CPA, the state must partner with communities to bolster the policy and offer incentives for more of them to direct funds to affordable housing.
State investment in housing creation, as well as the strengthening of the Community Preservation Act, will help Massachusetts overcome the housing crisis and become more competitive – a reality that becomes all too unlikely if the state passes a transfer tax.
Bill Tanski is a founding partner of Chelmsford-based Outlook Capital Partners, a private investment firm focused on real estate debt and equity investments.
