The housing industry spent last week staring down a pair of ideas on Beacon Hill which many in the industry find objectionable: rent control and real estate transfer taxes.
Both represent a strong backlash against rising rents and a building boom that has created far more housing and wealth for a select few than benefits for the mass of renters and first-time buyers in Greater Boston’s urban core. And at least one has a chance at passage.
Luckily for real estate investors, developers and owners, rent control appears, for now, the least likely to pass. The two bills on offer, H.1316 and H.3924, backers have only managed to collect 21 co-sponsors, in addition to their respective authors Rep. Dave Rogers and Reps. Nika Elugardo and Mike Connolly. And the list reads like a who’s-who of the 160-member House of Representatives’ most progressive members.
While the concept of rent control has attracted some high-profile support from the likes of Somerville Mayor Joe Curtatone and others, H.3924’s incredibly problematic implementation language – it lets each municipality set regulations via a local board – makes it easy for real estate interests to point out it could give towns like Needham yet another tool to prevent rental housing construction within their borders. Nothing in that bill prevents the same wealthy suburbs who have used exclusionary zoning to keep out new development for 50 years, helping precipitate today’s housing crisis, from barring rent increases beyond 0.1 percent per year.
Transfer taxes, however, are another matter. The three bills, H.1796, H.2457 and H.2552, have 46 co-sponsoring representatives between them, and a much stronger argument.
Some form of immediate aid to struggling renters, perhaps in the form of an emergency assistance fund, is both politically and morally necessary to help those the housing crisis hits hardest even as all sides work to crack open suburban towns that aren’t pulling their weight.
While earlier forms of rent control has been conclusively shown to be bad for both tenants, by deterring landlords from improving their properties, and housing construction, by scaring off investors, transfer taxes have a much less historical baggage, and they seem to many a logical way to help capture the big increases in property values the area has seen in the last 10 years. At a time where the area needs significantly more capital poured into affordable and workforce housing construction, this makes a seemingly fair idea like this attractive to legislators.
Academic studies of transfer taxes in other areas appear to show that they do not have the same devastating impact on local housing markets. The marquee example – Toronto’s sudden 2008 imposition of a transfer tax to balance its budget – was followed by a sudden drop in sales and inventory that year, but not only is that data point muddied by that fall’s global financial crisis, the area’s housing market has clearly roared back, and investors are still content to pour money into large projects in the city.
The key mistake legislators must avoid is hurting first-time buyers. Research shows a tax that applies only to homes above a certain threshold, if set low enough, can discourage first-timers from bidding on homes priced above that bar. Similarly, New York’s “mansion tax” has seen many sellers of luxury properties price their homes just below the point where the tax takes effect, reducing the amount of money collected in taxes.
The research is less clear on how a 2 percent transfer tax would affect new construction or other commercial activity. It is entirely possible, if these taxes are implemented too suddenly or unevenly from town to town, that they will simply scare away investors from particular communities for a time as pro formas suddenly show noticeably lower returns. Legislators should also expect many landlords to pass the costs of this tax on to their retail, office and residential tenants in order to meet their income targets. The deals in which buildings are bought and sold are complex things that are difficult to reengineer on the fly, and politicians must be prepared to take the heat for any evictions or other issues these taxes cause.
As we have pointed out in this space before, though, this backlash against high housing costs will continue and may well grow stronger the longer this housing crisis drags on. While the crisis has its roots in decades of under-building and under-investment in mass transit, no amount of building can change conditions overnight. Some form of immediate aid, perhaps in the form of an emergency rental assistance fund, is both politically and morally necessary to help those the housing crisis hits hardest even as all sides work to crack open suburban towns that aren’t pulling their weight.
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