Affordable housing is noble goal. Hiking real estate tax would be counterproductive | Opinion

For some lawmakers in Olympia, the only way to solve a problem is with more taxes. But when the problem is increasing the supply of affordable housing, raising taxes isn’t the answer.

The latest example is House Bill 2276, an “affordable housing” proposal that would impose a new one percent transfer tax on the sale of properties over $3.025 million. That tax would be on top of the existing 3% real estate excise tax (REET) collected on those sales — already one of the highest rates in the nation.

Proponents claim that anyone selling an expensive property like that can afford to pay more. If you’re not the owner of a $3-plus million mansion, why should you care?

Let’s start with the obvious: When new taxes are justified as applying to only the wealthy, all too often they get expanded to lower incomes over time. So, by the time you’re ready to sell, who knows what you’ll see.

But even today, most $3 million real estate transactions are commercial and industrial properties and apartment buildings. In today’s challenging market, owners may be selling precisely because they can’t afford them.

Regardless of whether you believe someone else can “afford” to pay more, increasing real estate taxes has economic consequences.

If HB 2276 passes, the construction and sale of apartment buildings, which typically provide more affordable housing options in our community, will be hurt. Even moderate-sized properties can exceed the dollar threshold in HB 2276, making them more expensive to sell. When costs to acquire apartment buildings go up, landlords are forced to charge higher rents.

A tax increase that drives up rents just makes it that much harder. Families struggling to pay for fuel, food, and other necessities shouldn’t be burdened with tax-induced rent increases.

The commercial real estate market is weak right now. CBRE, a leading national commercial real estate firm, estimates vacancy rates in the Puget Sound region are above 25%. Companies are downsizing offices as more employees choose remote work. Retail stores are struggling as more consumers shop online. As a result, property values are down and a market rebound is unlikely anytime soon — the worst time to burden sellers with additional taxes.

Today’s higher interest rates make matters worse because lenders can only finance a smaller number of projects, and those in Washington are competing for capital with those elsewhere.

Oregon’s REET is 0.10% and California’s is 0.11% — if HB 2276 passes, Washington’s top rate will be roughly 40 times as high. When state real estate taxes make projects more expensive, we’re going to lose out.

These conditions are why state revenue collections show a continuing drop in REET tax collections, especially from high-value transactions.

Proponents counter that they’re cutting the tax rate on sales under $3.025 million. As always, the devil is in the details.

First, there is no tax cut on property sales under $525,000; the bill to make housing more affordable doesn’t give any break on the most affordable housing. For a home valued at $625,000, the total tax savings would be $180. Such small savings are not nearly enough to offset the higher top rate’s negative economic impacts for our entire region.

Money raised under HB 2276 would go to government affordable housing programs. So, the idea is to increase real estate costs and use the money generated to fund affordable housing. Let that sink in. This bill will target the exact families they are saying it will help.

Last session, lawmakers directed more than $1 billion into housing programs — all without raising the REET. They also took steps toward addressing zoning and regulatory requirements that add unnecessary costs to new housing. They should continue to pursue those strategies to help reduce costs and increase housing supply.

Let’s look for ways to help make affordable housing though accessory dwelling units, regulations and zoning. Not add additional tax burdens on the already overburdened housing sector.

Unfortunately, sometimes it’s easier to throw money at a problem than to address underlying causes. But heaping additional taxes on our state’s real estate industry isn’t going to help. It’s going to make it worse. Lawmakers should reject HB 2276.

Tim M Brigman of Charlie’s Connections and Associates LLC and Pasco Chamber Board of directors .