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A real estate transfer fee may soon be established for the City of Somerville.
By Jim Clark
A request by the Mayor’s Office that the Somerville Board of Aldermen consider and approve a home rule petition authorizing a real estate transfer fee was presented at last week’s meeting of the Board’s Legislative Matters Committee.
The mayor’s request specifically stated: “To the Honorable Board: I hereby request your consideration and approval of a home rule petition to authorize the City of Somerville to impose a real estate transfer fee. Please find attached the draft Home Rule Petition, a memorandum with updates on the Real Estate Transfer Charge Task Force, and RKG’s transfer fee impact analysis. My staff will be available to answer any questions you may have. Thank you for your consideration of this matter. Respectfully, Joseph A. Curtatone, Mayor.”
Intergovernmental Affairs Director from the Mayor’s Office Tim Snyder explained that the proposal was a recommendation of the Sustainable Neighborhoods Working Group and the main question is how to pursue a home rule petition (HRP) authorizing the city to impose this tax.
According to Snyder, the first step is to secure BOA approval to move forward with the petition to the legislature, and if it is approved, the second step would be to develop a local ordinance to put in place exactly what would happen.
Having specificity in the HRP is helpful, Snyder said, but if there is an unanticipated problem or issue down the road after a local ordinance is passed, the proposal would need to come back to this committee to be resolved and then put forth in another HRP to the state legislature.
Snyder added that although the city’s state delegation is supportive of the proposal, the anticipation is that securing legislative approval would not be an easy task. The legislature’s current 2-year session ends in July, and after that, any member can stop a bill by simply objecting to it. If the city wants this proposal considered this year, the HRP should be submitted by April.
Alderman At-Large Mary Jo Rossetti suggested inviting the delegation to be present during the committee’s deliberations of this item, to offer any advice on how to best draft the HRP.
Snyder informed the committee that the city anticipates submitting additional HRP’s and noted that Somerville probably has more HRP’s before the legislature than any other community. He told members that the city needs to be aware of the time, effort and political capital expended by its delegation to support HRP’s.
Director of Housing from the Mayor’s Office of Strategic Planning and Community Michael Feloney spoke about how the recommendations came about and reviewed highlights of the memo.
Feloney told the committee that some Task Force members thought that it was appropriate for the sellers to pay the tax, while others felt that the burden should be on the buyer.
Alderman At-Large William A. White Jr. inquired how the fees would be collected and asked how it is handled for the Cape Cod Land Bank.
Committee Chairman, Ward 5 Alderman Mark Niedergang, reported that the task force held discussions about a variety of key issues, including whether there should be varying fees, if a preamble should be included explaining why the tax is needed, who should be responsible for the payment and where the funds would go.
Alderman At-Large Stephanie Hirsch added that the task force had questions about who would be exempted. She said that the tax would contribute to more stabilized neighborhoods.
Board President and Ward 7 Alderman Katjana Ballantyne said she thought that if the burden is on the seller, it discriminates against the elderly. She said there needs to be a discussion regarding the impact on seniors’ financial well-being.
Ward 2 Alderman Jefferson Thomas (“J.T.”) Scott asked if this item could be recommended for approval at this meeting and several members objected, citing the need to have additional discussions and time to schedule a public hearing, in order to make a better case.
Chairman Niedergang voiced his agreement for scheduling a public hearing as soon as possible, but wants to develop a revised version of the HRP language for a transfer fee that reflects input from the aldermen.
Ward 3 Alderman Ben Ewen-Campen went on the record in support of a transfer fee and said that it should be a top priority for the City.
The matter was kept in Committee for further action.
Download the draft of the Home Rule Petition here
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First, the transfer fee should be simple and concise. The models – from Seattle to Berkeley, California, to Nantucket & Martha’s Vineyard – make no distinction about “who pays,” since it is ONLY the buyers who pay.
Second, the home rule amendment should be submitted with the active support of the Metro Mayors Coalition, since that is Somerville’s primary reason for participating in that Coalition, and passage is our highest priority. Additionally, the Coalition’s participation will guarantee that the funds from that fee will have concrete and documented impact – unlike other affordable housing initiatives. Targeting that housing – and other forms of economic development – will deliver on that guarantee to both Somerville voters and the other members of our coalition.
We need to take a stand on the addition of all of these home rule fees. Somerville now has a $40 parking permit fee, water bill fees and is looking for even more fees. This is another attempted way to bypass taxpayer protections that reside within Proposition 2 1/2. Somerville needs to live within its budget much the same way as its taxpayers need to live within their budgets.
just another way to impose a tax on those of us who simply cannot afford any more. Selling a house should not be a windfall for the city. It should have nothing to do with them and they have no business at all doing this to us. Just because they overspend and do not know how to make up the difference. Cut out the waste and get down to business. we are already paying way to much for things that are none of our business.
Yes Prop 2&1/2, and in the following years additional budget cuts, many hardworking employees laid off while many new hack positions
were created. Thus all the monies that were to be saved were not.
Common sense is if you are laying off employees you should not be
supporting projects to build gazebos, etc.
Then the P.T. Barnum fraud projects like taxing again the black boxes
that feed water meter readings to the city. These were installed several decades back to replace city workers who read the meters and the boxes were paid by tax monies then. All the newly created fees to double tax the residents/renters. Thus Double Jeopardy exists, a true
injustice to the residents/renters of this city. The State Attorney General and Auditor should be looking at this.
absolutely a back door method to add taxes. a disgrace
Dear TheoNa,
A transfer fee/tax is quite unlike other service fees. It’s a gentrification fee, and only hits those who buy. It’s a sales tax to create housing options for those who live here and now need to own to stay. As such, it’s an “admission fee” to those who join “the community” which should, now, be primarily homeowners since rent control is no longer a legal option in this state.
Dear OldTaxpayer,
Somerville has one of the lowest ratios of commercial space in the nation, and, therefore, has a high residential rate already, and still lacks the resources to protect long term residents and new employers from displacement. Unlike the fees and taxes you cite, a transfer fee won’t have any direct impact on any of those demographics. And, OldTaxpayer, you can successfully apply for a tax abatement and a full tax deferral if you’re over 70 and makes less than $80,000 a year. Get what you’re due before complaining about what will never effect you.
Dear Ritepride,
I can’t figure out what you’re rant is about. There are no loads of layoffs; the water meters mostly work quite well; and most new fees are short term, until the commercial base is large enough to protect us. Get your facts straight, and clean up your writing.
Transfer Fee. LOL. This will die on Beacon Hill. There is zero chance this transfer fee ever happens, nice try by our liberal elite BOA to think this will ever see the light of day. Just another swing and miss by this amateur BOA.
So we tax housing to make housing more affordable? Hmmm.
To say a transfer fee will only impact the buyer is very naive. It will most likely reduce the price that the seller receives..
The bigger issue is that government’s insatiable appetite for more taxpayer money continues unchecked. As all taxes are based upon a percentage of a transaction (e.g. sales, income, etc.) there is already a built-in adjustment to cover inflation for the government, even if the taxpayers don’t receive the same built in guarantee that the government receives.
What is next? A car transfer fee? After all, if you can afford to buy a car then you can afford to pay the “small fee” to help the .
Dear Joe Beckmann, when the residents paid for the water meter boxes back decades ago and then are hit with an additional fee now, it’s long term not short, double jeopardy. The number of police officers, fire fighters, DPW workers today are way less than the number we had in the 60s. Back then the Fire Dept. operated with 7 Engines, 4 Ladder Trucks, 1 Rescue, 1 Ambulance. Today the Fire Dept. operates 5 Engines, 3 Ladders, 1 Rescue. Thus response areas have increased. The Police Dept. operated 2 officer cruisers. Today they operate 1 officer
cruisers. 60s Police Dept. & Fire Dept. with many more personnel than they do today.
The city is 4.2 square miles in land area. How do we increase commercial space? Force residents out by eminent domain?
There is way too much tax exempt property! 60% of Somerville land is tax exempt. Tufts, B&M railroad, Harvard Health, Halfway Houses, etc.
Most of the churches no longer function as churches. They are renting
space out thus making profit. Tax Exemption should be denied. Those tax exempt properties that call upon the city for services Fire / Police / DPW) should be charged a users fee. [Boston Fire responds to a hazmat
incident in Boston there is a fee for each vehicle and each personnel that responds] There should be fees charged to all businesses with faulty alarm systems; i.e. faulty burglar, fire alarms in which the fire or police respond multiple times in the same day/week. No ranting Joe, just facts.
So I’m supposed to be happy that after maintaining a multi-family house for years, always renting at below-market rate, that the city wants to take part of the sale price of my home? How is that fair or reasonable? Anyone who thinks this will add affordable housing is living in an alternate universe. Buyers will deduct the fee from what they are willing to pay for the house. And since most of the buyers today are wealthy developers they don’t care, but will add the fee back in to their asking price. Where are the winners and losers? I see someone like myself as a huge loser, and they city slush fund as a huge winner.
Dear Highlander,
While you’re right that a local transfer tax has little traction with a Republican Governor and our current House Speaker, a strategy to harness gentrification with a range of ownership options, financed by a fee half that in Seattle or Nantucket or Martha’s Vineyard, only as long as it takes to see which strategies produce more and better jobs and more affordable housing options, is a very different case to make. And that case is best made by the Metro Mayors Coalition, with Somerville as the test site, since our inflation is the most painful in the region, and our need for jobs and stable housing the most critical.
Dear Annie,
We tax the new guys who want to buy into Somerville to secure those of us who want to stay longer. It’s not a tax you’ll ever pay if you never sell, and, like any other sales tax, it is part of the cost of what buyers pay. If the “market” collapses, you may be right that some of us would sell at a discount, but 1% ain’t so high a barrier.
Theona, once again,
I don’t know where you live, but there is already a 6.25% sales tax on cars. (https://www.mass.gov/service-details/sales-and-use-tax-on-motor-vehicles) And it ain’t the dealers who pay!
RitePride, you’re still having problems with layout. Meanwhile, while it seems your arguments about fees may be reasonable, the issue here is 1%, much less than most of those sales taxes, and what we would do with that kind of income, quite different from subsidizing city departments. The goal of a transfer fee is to guarantee limited equity mortgages and job development. Guarantees are very different from subsidies: they rely on credible value continuing to appreciate. I don’t know about you, but my house has grown in value by over 10% per year for over 20 years. A 1% fee when I sell won’t hurt my profits and would give the fund enough to guarantee two mortgages in the first year, and two to five more within 10 years. Not a bad trade.
And dear #nothappy,
If you want to give up 1% of this kind of inflation, it could probably support yet another mortgage guarantee, but that’s up to you. Most buyers aren’t – yet – wealthy developers, and, if they are, they’ll generate even more 1% fees when they sell. Incidentally, we’ve not had any discussions with US2 at Union Square, nor with the Assembly Square players, about what ratio of their new housing will be for sale or for lease. If they sell, they’ll contribute lots more than thee and me to this kind of an investment fund, which will guarantee you and your kids much more affordable ownership for the next century.
This transfer tax is more suited to a gated community than a city. The concept that people should have to pay an admission fee to become part of the community is not right. Is that really what Somerville wants to be?
Those promoting this tax say it will slow gentrification but the opposite could happen. It could push long time home owners to sell and make it more difficult for those who grew up here to stay. Developers and trust funders wont care about the tax but regular people will. It could discourage homeownership, reduce the number of people invested in the community and promote transiency.
Imagine being one of these fictional people.
Anna was born in Somerville, attending Somerville schools and working hard to graduate at the top of her class. She attended college at nearby Tufts University, living at home for several years and eventually moving into an apartment. She got a great job locally after graduation, continuing to live with roommates and building her savings each year, putting $6,000 per year away towards a house. She eventually got married and decided to buy a condo near her parents with an eye on settling down and starting a family. She and her husband had scrimped and saved enough for a down payment on a $600,000 condo. Now she is told that she has to pay an additional $6,000 tax (one year of savings) because people like Joe Beckmann say she has to pay an “admission fee” into the community she spent her life in.
Victor moved to Somerville from Brazil at age 20. After years of hard work he opened his own construction business and bought in a home in Somerville for $800,000. He invested $30,000 into the house, adding a new roof, new furnace, and new half bath. After three years his parents who were still in Brazil became ill and he decided to move back to care for them. The house sold for $880,000 appreciating a reasonable 5% per year. Brokers fee and other fees and taxes were $45,000, and after deducting his $30,000 investment, he gained just $5,000. Now he is told he has to pay an additional $8,000 transfer tax, meaning he now loses money because of having to pay a “gentrification tax” on the unexpected need to care for his parents who dared live somewhere other than the 4 square miles of Somerville.
Harry and Ruth bought their home for $100,000 and today it is worth $1.2 million. They raised three children, and paid for their college education by taking out a home equity loan of $230,000 total against the value of the house. Harry retired at age 61. With their children grown they decided to downsize to a condo without steps. They sold their home for $1,200,000 netting $1,030,000 after fees and taxes and subtracting their initial purchase price. They bought a condo for $700,000, hoping to use the rest of the profit to support their retirement. After paying the home equity loan and cash for the condo they were left with $100,000 profit. Now they are told they have to pay a $12,000 tax taking more than 10% of their retirement savings. This family spent decades contributing to Somerville. Is this how they are repaid?
Jessica and Liam are moving to Boston for new jobs. They have 2 children and hate commuting. Proximity to the jobs in Cambridge is important so they are looking at Cambridge, Arlington, Medford, Somerville. Cambridge has a low property tax rate but high home prices. Arlington and Medford have an abundance of single family homes with a yard. Somerville has similar housing prices to Arlington and Medford and similar tax rates but smaller homes for the same money. Jessica and Liam like the idea of raising their kids in a dense walkable place and think this could balance not having a yard. With high home prices regionally they worry about their investment. Then Somerville unilaterally imposes a new tax that will cost them $5,000-10,000. They wonder if they will ever make this back. They are less likely to choose Somerville, and decide to move elsewhere. The home they would have lived in is rented out to undergraduates.
“until the commercial base is big enough” Beckman , help me understand why the new development in Davis and Assembly have not had the expected impact on property tax? taxes just keep going up and I haven’t heard why. no further fees until someone explains this
Dear concerned:
Your stories are heartwarming, but twisted. Any sales tax is a disincentive to buy, but has much less concrete impact on selling – whether for a car or a house. Transfer taxes have a long and varied history, with a 2% rate in Seattle, and a 1.5% in Berkeley and much of Northern California, it’s hardly an incentive to gentrify, and, rather, a disincentive to flip owners. That’s why it is timely to get this passed before the major Union Square residential boom occurs, and US2 builds and sells 2,000,000 new square feet.
It’s also quite feasible to include exemptions, as the Board of Aldermen are now discussing, but only when we know their impact. Long term residents might be exempt, as may seniors or city workers, to encourage stability. Yet encouraging stability by waiving a sales tax is more than a little improbable: again, sales taxes hit buyers most, and sellers least – as your Anna story implies – and, while it may be feasible, it’s not as if it’s an “extra year of savings” when there are mortgages involved and when up to $10,000 a year of mortgage interest tax exemption survives even Trump’s “innovations.”
And I don’t know about Victor’s appreciation value, but my house has appreciated at about 10% a year for 20 of the 22 years I’ve owned it. Given that rate, a one time 1% really isn’t significant. And Harry and Ruth will still have a $700,000 property in spite of a $12,000 tax, which they can flip into a reverse mortgage if they want to live comfortably on their asset. And, frankly, I don’t know where you shop for housing in Somerville that’s as inexpensive as Medford or Arlington, so you might give Jessica and Liam some credit for finding unique deals.
Wait, is this the transfer fee that was supposed to be targeted at real estate speculation or just a general transfer fee for all transactions.
If it’s the former, then don’t make it a modest 1% proposal. Crank it up to 5% and take some real money out of the pockets of the house flippers. If it’s a general fee, then it’s no different than the land banks on Nantucket and Martha’s Vineyard. They used to preserve open space. We could use it to build/convert affordable housing. In a runaway housing market, it’s appropriate to siphon off some that filthy lucre and spend it on community needs.
Joe Beckmann: 10% a year for 20 years? Wow. Mine has not done that in the 11 years I’ve had mine.
Villenous. I agree with how you are describing it and the years to put teeth around the flippers
MA already has a transfer fee on property sales borne by the seller ($4.56 per $1000), so when you sell a condo (say) for $500,000 you’re already paying ~ $2300 to the state. Some of which the city already gets back in local aid.
It would be nice if some realtors can chime in on the impact this may have on RE prices along with the impact analysis being paid for by the city for the city. The goose that laid the golden egg here has been the huge increase in property values and the property taxes the city has recouped from the rises in values. I can only see this as grabbing the goose by the neck and getting him ready for the pot.
What other cities in MA have this?
If you think this won’t affect the value of your home I think you’re wrong. All taxes/fees are passed on, whether they are the cost of providing more expensive paper bags in stores, a higher sales tax, or anything else. It is passed on, and buyers will take that into account when they purchase a house, deducting that amount from their offer.
There should be way to focus it on flippers/speculators and not call it an “entry-fee.” to Somerville. I’ve lived in Somerville for 15 years and would sure like to buy some day. I already coach sports, have kids in the schools, and consider myself a part of the community despite being a renter. This could be another barrier to a family like mine actually buying a place here…..or maybe have it kick in over a threshold of 700k, that way when I finally scrape up enough $ for a down payment on a hoarder house that needs a gut, it won’t hit me too hard
There are all sorts of ways to encourage people like Jim who are part of the community and want to buy in. Perhaps if you can show proof of residency the fee is returned to the buyer. Or maybe he could apply for a “resident buyer” program where they can get a grant or a lower interest loan (extending their buying power)… A program like this is owned by the city and what we do with it is up to us. Lets make it work.
Many good comments. Such a tax should rightfully be directed towards professional house-flippers and real estate speculators, due to the negative impact on the public interest vs. their profiteering motives. Good faith long time Somerville homeowners or some young couple shopping for their first home in Somerville should not be the targets of this kind of thing.
I’m not sure there would be any interest in ‘targeting’ speculators. The premise would have to be that they don’t have the right to buy here because property values are high. Many people who have pushed initiatives such as this have said of anyone selling their home in this market ‘cashing out’ or refers to them as having made a bundle of money thanks to the current market. I don’t see that there would be much interest in giving these people a break. In actuality many of them are just trying to move to a place that is cheaper to live, are older adults downsizing, or people with young children looking for a more kid-friendly place to live. I would like to know exactly how this will add to affordable housing. Home values are still extraordinarily high, pricing out most families. And since this administration has allowed condo conversion of virtually every 2 or 3 family house, you can no longer buy a multi-family with the idea of rents helping you to pay the mortgage. Condo conversions is a huge part of the problem yet the city won’t address it.
Based on studies of past enactments of real estate transfer taxes, homes values will drop by the rate of tax. So every Somerville home owner will see their home value drop by 1% and depending on how the rule is implemented may be on the hook for paying the 1% tax.
Journal of Economic Geography (2011) pp. 1–28
“Taxes levied on the sale or purchase of real estate are pervasive but little studied. By exploiting a natural experiment arising from Toronto’s imposition of a Land Transfer Tax (LTT) in early 2008, we estimate the impact of real estate transfer taxes on the market for single family homes. Our 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. Relative to an equivalent property tax, the associated welfare loss is substantial, about $1 for every $8 in tax revenue. The magnitude of this welfare loss is comparable to those associated with better known interventions in the housing market. Unlike many possible tax reforms, eliminating existing LTTs in favour of revenue equivalent property taxes appears straightforward.”
Since my last posting on 2/11, I mostly agree with most comments. Any transfer fee – like any sales tax – will primarily impact buyers, unless such a fee makes Somerville dramatically more expensive than real alternatives. And 1% is not dramatic. That distinction is particularly relevant to the Toronto model, since that remarkably sophisticated statistical research focused on the impact on a highly competitive metropolitan market. I strongly recommend those who are concerned with what those writers call a “welfare loss” look at the article itself. It is focused on “the market for single family homes,” which is remarkably unlike 90% of Somerville.
Most of the other comments apparently did not notice my first comment’s focus on how such a fee would be used: to guarantee affordable housing and economic development to long term residents and other special populations. More specifically, it would create a fund – much the way the Land Bank in Dudley Street is a fixed resource – to guarantee mortgages with a limited rate of appreciation, so fewer people would be displaced, and apartments would remain affordable indefinitely. At a certain point there may be no further need for further public investment in such a fund, since it’s guarantees will recycle to new owners once the fund is large enough. Somerville, with 32,000 housing units, is small and crowded enough to have limited need for limited equity ownership.
Sounds like there is already a 4.56% transfer fee at the state level, so we’ll add another 1 or 2% on top? I don’t see how that can help property values.
No other city has it yet and it seems like a way to exclude people on the bottom from buying. It’s a shame. I am all for making developers kick in more, but this won’t do it and could backfire on us with decreased values (and then taxes) for properties. Has to be a better way than adding more expense to purchase here.
Let’s hope this gets vetoed at the state level.