After a similar proposal failed last session on Beacon Hill, Boston Mayor Michelle Wu and supporters on the City Council hope that by pairing a proposed tax on home sales to support affordable housing with senior property tax relief they can entice lawmakers this year to support the local initiative.
Wu has put forward a plan that would allow Boston to levy a tax of up to 2 percent on real estate transactions to generate close to $100 million for reinvestment in the creation and development of affordable housing in the city.
The real estate transfer tax has been paired by the Wu administration with an increase in the senior property tax exemption, raising income and asset thresholds to qualify more homeowners 65 and older for the tax break. The plan, if approved by the City Council, would require the Legislature to sign off on the so-called "home rule petition."
"I think both issues are very, very important to the administration so we thought packaging them would make it a more popular home rule and more popular piece of legislation to vote on," said Sheila Dillon, the city's chief of housing.
The idea of using real estate transfer fees to generate revenue has been popular in recent years in some corners of the Legislature, but has failed to gain traction among top House and Senate Democrats to the point that even a local option could pass.
Gov. Charlie Baker once proposed using an excise tax of property transfers to generate $1 billion over 10 years for climate resiliency projects, while the House voted down an amendment to an economic development bill last session that would have given municipalities the option to impose real estate transfer taxes.
Sen. Lydia Edwards, who continues to sit on the council after joining the Senate last month, said the real estate transfer tax would create a "sustainable source of funding to ensure that no matter what happens as long as developers were making money the city would have sustainable funding to subsidize affordable housing."
The Boston City Council's Committee on Government Operations held a virtual hearing on Wu's petition Thursday where councilors indicated broad support for the proposed transfer tax and senior property tax relief.
Wu's proposed transfer tax would apply to properties that sell for $2 million or more, but unlike the version that cleared the council in 2019 and died on Beacon Hill, the tax would be only be assessed on the value of a property above $2 million, rather than the full amount.
Based on 2021 sales data, city officials project the tax would generate $99.7 million annually, or about $28 million less than the previous iteration. The city budget currently allocates about $71.5 million for affordable housing programs.
Tim Davis, deputy director for policy and research for the City of Boston, said that in 2021 the transfer tax would have only impacted 704 real estate transactions, mostly in downtown neighborhoods and on the sale of high-end condominiums.
Nicholas Ariniello, commissioner of assessing, said the 2 percent transfer tax has been packaged with a proposal to increase the income and asset thresholds that qualify seniors for property tax exemptions in Boston.
Wu is proposing to increase the maximum exemption from $2,000 to $3,000 by increasing the income limits from $24,911 for a single filer and $37,367 for a married couple to $47,000 and $53,700 respectively. Asset limits, not counting the value of a senior's home, would also double to $80,000 for a single resident and $110,000 for a married couple.
The income threshold would be tied in the future to area median income, and set at 50 percent.
"Really we're changing all the elements of the program to be something that we think really makes more sense for the area," Ariniello said.
While officials said it was difficult to estimate how many seniors would be impacted by the expansion of the property tax exemption program, Ariniello said based on just the income eligibility criteria Wu's proposal could potentially double the application pool from 4,600 homeowners to 8,700 and increase program participation from about 500 to 1,000.
Councilor Ricardo Arroyo, who chaired the committee hearing, said there was "broad support" on the council to send the home rule petition to the State House, and the vast majority of councilors spoke up in favor of the proposal.
Councilor Frank Baker, however, questioned the decision to pair the transfer tax with senior property relief.
"We should be helping our seniors and having those conversations without attaching it to a transfer fee," Baker said.
The Savin Hill resident said he doesn't support the transfer tax because he believes it ultimately hurts smaller property owners.
"It's going to be difficult for members of the State House to vote on a tax increase now in an economy where inflation is up around 7 percent and rates on getting money are going up," Baker said.
Councilor Kendra Lara disagreed with Baker, saying she supports the strategy of trying to sweeten the petition for lawmakers by attaching senior property tax relief.
"I am supportive of keeping them together. I think it does make it a more attractive home rule petition," Lara said.
If the Legislature were to approve the home rule petition this year, the City Council would have to pass an ordinance to implement the policy, at which point decisions could be made on where to set the transfer tax rate up to 2 percent and whether to offer exemptions for non-profits, sales to affordable housing developers or other types of properties.
Council President Ed Flynn said he would support additional tax relief for property owners that rent to individuals and families at below-market rates. "We're in a housing crisis so we need to figure out different ways to fight displacement," Flynn said.
Edwards also raised the possibility of scaling the transfer tax to apply lower rates to properties that sell for between $2 million and $3 million, for instance, with the top tax rate of 2 percent applying to only the most expensive properties.
"I think that would be helpful and maybe calm some in the real estate community," Edwards said.
Dillon said that 15,000 seniors in the city are considered "tax burdened," meaning they pay more than 30 percent of their income on housing, while 60,000 non-senior households fall in the same category. More than 40,000 people are on the Boston Housing Authority waiting list for affordable housing.
"We know for families to build wealth and stay in the neighborhoods they love, we need to build more affordable homeownership," Dillon said.
