Report: The High Cost of Inaction by the Massachusetts Legislature

When it comes to the lack of affordable housing in Boston, the Massachusetts state legislature is a big part of the problem.

In December 2019, the Boston City Council passed legislation to levy a luxury real estate transfer tax. A developer or individual selling a property would pay a 2 percent transfer tax on homes and condominiums where the sale price exceeds $2 million. The revenue would be dedicated to the City’s affordable housing trust fund, helping to create new and permanently preserve existing affordable housing units.

A 2018 IPS study, Towering Excess: The Perils of the Luxury Housing Boon for Bostonians, documented how thousands of new luxury units were coming to market, many that will sit vacant as a form of “wealth storage.”

In most cities in the U.S., this bill would have become the law. Cities like San Francisco have successfully levied a luxury transfer tax and collected tens of millions of dollars in revenue. In Massachusetts, however, cities and municipalities are “creatures of the state.” Laws related to taxation and other forms of regulation must be approved by the state legislature through home rule petitions. These rules are a vestige from when the Boston Brahmins worked to limit the emerging and growing power of Irish politicians at the turn of the 20^th century.

Three years of Beacon Hill inaction have come with a price tag, costing the city potential revenue it could deploy to help solve its housing crisis. How much revenue?

According to a new report, “The High Cost of Beacon Hill Inaction” by the Institute for Policy Studies, we estimate that over $20 million could have been raised from transfers in just six luxury buildings if the tax had been in place.

The City of Boston has invested substantial resources in addressing its acute housing affordability crisis over the decades. Yet the crisis persists. An annual income of $181,000 is needed to afford a median priced home and nearly half of renters and more than a quarter of homeowners are cost-burdened, i.e., they spend 30 percent or more of their income on housing expenses. Nevertheless, many state legislators will not vote to give Boston the tools it needs to increase its affordable housing stock.

Boston is essentially requesting that Beacon Hill legislators grant it the power to tax itself and invest in solving housing problems within its city limits. The tax won’t cost the Commonwealth a nickel but will unleash tens of millions of dollars that Boston could deploy to create and preserve affordable housing.

The findings of the report include:

• As of September 1, 2022, 654 out of a total of 841 units have been sold in six luxury buildings in Boston.
• A total of 731 transactions were completed for a total of $2.17 billion in sales revenue (this number is higher than 654 because of initial sales plus resales and transfers). Total sales are expected to increase since there are still 187 unsold units and purchased units can later be resold. 41 were resold or flipped for a total gain of $11.7 million.
• A third (34 percent) of all of the units are owned by LLCs or Trusts and they account for $929.2 million in sales. A subset of these are anonymous shell companies.
• A two percent transfer tax on all units sold above $2 million in these six luxury buildings in Boston would yield $19.8 million. A tax on just two transfers on just one unit at One Dalton Place, Unit 2804, would have generated $35,000 in revenue.
• If Boston implemented a more progressive transfer tax on housing with a 2 percent transfer fee on units that sold above $2 million and a 4 percent transfer fee on units that sold above $4 million, the potential revenue raised would be much more substantial. This more progressive tax regime would raise a total of $29.8 million in these six luxury buildings.
• A Boston household of three needs an income 50 percent higher than the Area Median Income to be able to afford a home in the Boston metro area. 47 percent of renters and 29 percent of homeowners in Suffolk County are cost-burdened.
• 55 percent of renters in the Boston metropolitan area have reported that their rent payments increased within the past year.

A transfer tax is one of the many tools needed to ensure that the City of Boston has the resources to provide dignified and affordable housing to all of its residents. An individual or a corporate entity selling a condominium for $6 million has no problem paying an additional $80,000 fee for their luxury sale.

Unless other Bay State communities are ready to step up and create the thousands of units of affordable housing that Boston is creating, they should give Boston the tools they are requesting.