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(The opinions and views expressed in the commentaries and letters to the Editor of The Somerville Times belong solely to the authors and do not reflect the views or opinions of The Somerville Times, its staff or publishers)
Dear Board of Alderman,
I write to you ALL because, as a current Somerville resident and home owner, I am frustrated. I feel the board has misled the public with regard to impact to current owner residents. Numerous times, the BOA stated current residents will not need to pay the tax, but is it your belief they will be affected? However, Somerville’s own report in fact indicates the contrary and states all current owner will potentially be negatively affected by lower sale price offers. It is also supported by basic econ 101 macro economic principles and empirical evidence studies.
Please, can every Board of Alderman, clearly go on the record on this issue. Answer the questions below and provide all the facts to the public. To the best of my knowledge, this issue was never publicly addressed and I personally brought this up in many emails with members of the board and never received a stance or opinion on this issue.
This is not my opinion but based on Somerville’s own consultant report on the tax, macro economic principles and empirical evidence studies.
If a private investor buys the property from a resident, and “the tax is imposed on the buyer, the buyer will simply reduce their purchase offer ” (RKG Associates – REAL PROPERTY TRANSFER FEE IMPACT ANALYSIS Somerville, Massachusetts October 2017).
“Data show that Toronto’s 1.1% tax caused a 15% decline in the number of sales and a decline in housing prices about equal to the tax” (Journal of Economic Geography Advance Access published May 6, 2011)
Questions for Somerville’s Board of Alderman
1. Do you believe that it is acceptable for current residents to indirectly pay for the tax, through possible lower home sale prices? A large portion of Somerville is non-owner occupied so moving forward a large portion of the buyers will inevitably a large portion of the buying market will be paying the tax and thus reducing their purchase offers. This is in line with economic theory, Somerville’s own report and empirical evidence. If so why was this not discussed or disclosed to the public?
2. You clearly state that current residents will not pay the tax, but will current residents be indirectly impacted by the tax through lower offer prices?
a. If you believe current residents will not be affected, do you have a source of information that counters Somerville’s own report by RKG, empirical evidence and economic theory. And if so, why was why was this issue not disclosed to the public?
b. Will this assessment hold true when the real estate market is a buyer’s market?
3. Were you even aware of this issue during deliberations? I wrote many emails to all Board Of Alderman highlighting this issue. If you were aware of this issue, why was this issue not disclosed to the public in any of the numerous fact sheets and articles written by Board of Alderman in support of the tax?
Sincerely,
Somerville Resident
Matt Griesbach
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Thank you Matt for addressing this issue in such a clear concise manner and with documentation to back it up. I can tell you now that the majority of the BOA (maybe all of them since this was approved by unanimous vote of the BOA) doesn’t care that it will affect current homeowners. The first draft specifically stated more than once that the ‘fee’ would be imposed on the seller. That’s one of the things they were forced to change but it is very telling. As long as they believe the fairy tale that this will help affordable housing that’s what they care about. I think this is meant to directly divert our money to the SCC. Although it was also telling that they voted against affordable housing as their union bosses told them that the unions’ needs take precedent. Watch their next money grab for the SCC: Right of First Refusal, a clear attack on private proerty rights.
In the Toronto the tax was blanket and affected all sales. the proposed, as far as I am aware is not, rather it is targeted at developers and non-owner occupied property. So it is not an apples to apples comparison.
While there will be an impact because investment buyers will not be willing to pay as much due to a reduced ROI when they sell, I don’t think the impact will be nearly as high as Toronto because the fee is not universally applied.
For an individual looking to buy a home to live in the impact will be negligible. Just like I did, the person who is looking to buy a home will have a budget that reflects the total cost and go-forward monthly mortgage commitment.
While the Toronto study is not apples to apples, it does support the principle that the tax will impact offer prices, even to sellers that are exempt.
Somerville’s report states the same concept explicitly. Buyers that must pay the tax will reduce their offer to account for the tax. So even exempt sellers will see lower offers, thus indirectly paying the tax. Both facts were presented to the board, but neither was brought to the public or addressed in open conversation.
Matt, the fact that buyers would just lower their offer was raised by many of the homeowners who spoke. It is common sense. The BOA chose to ignore that, pitting homeowners against renters, and deciding that the rights of the renters trumped the rights of the homeowners.
It doesn’t make sense to lower your offer unless the tax will hit you. That will have to be disclosed up front. Because as I said above, buyers look at the total price.
I’m not going to feel bad if an investor or developer makes 1% less on a flip. People who actually live in their homes will not be affected.
Having the city focus on us, resident, tax paying, homeowners who live, work and raise family here is a good thing. We’ve bought in and committed.
In today’s real estate market – and actually that of the past 25 years – no buyer is going to even consider the transfer tax when making an offer. Think about it: you’re desperate to get a place – the list price for the condo is, say, $650,000, and you know they’ll get 6 offers the first day. The process is about as rational as the decision to buy a lottery ticket. Do you offer $750,000? $800,000? The only people for whom a 1% tax / fee will matter are investors who put dollars / cents ahead of emotion, and then only during an economic slowdown when the impact on their bottom line means something.
Also, after the unalterable laws of supply & demand, public enemy #1 in housing are investors / speculators who buy / flip / develop buildings. Talk about a transfer tax: They snatch up lower price houses / units from other would-be buyers that didn’t have cash offers, add “luxury” schlock that many don’t really need or want to pay for, and then put them back on the market at wildly elevated prices – often screwing neighborhoods in the process. These people are the true scumbags. To the extent that a transfer tax can be designed to hit them do it, and don’t just stop at 1%. Make it so high it chases them away.
I’m with Matt and yetanotherposter. It’s great to be getting a cash infusion for affordable projects, but it’s not nearly a high enough % to give actual families a real advantage and chase away the weasels.