Testimony in Support of Boston Real Estate Transfer Fee

Mass Alliance of HUD Tenants

42 Seaverns Avenue/Jamaica Plain/MA/02130
617-522-5133/617-233-1885 [email protected]

Testimony in Support of H4637, Boston’s Home Rule Petition
relative to real estate transfer fees and senior property tax relief

To: Sen. Adam Hinds and Rep. Mark Cusack, Co-Chairs Date: June 7, 2022
Joint Committee on Revenue
Members of the Joint Committee on Revenue

From: Michael Kane, Mass Alliance of HUD Tenants (MAHT)

As a statewide tenants union representing low income tenants in government assisted housing, the Mass Alliance of HUD Tenants (MAHT) urges a favorable report this week for H4637, the Boston Home Rule Petition (HRP): An Act relative to real estate transfer fees and senior property tax relief.

The Committee is to be commended for favorably reporting several local HRPs (Nantucket, Somerville, Concord and others), empowering localities to raise real estate transfer fees and apply the resources for affordable housing in their communities. While time is short, the Committee’s recommendation gives these bills a greater chance at passage in this session. We urge you to add Boston’s HRP to these measures supported by the Committee.

In 2020, the Institute for Policy Studies published a Report, Money on the Table: Beacon Hill Inaction Stalls Affordable Housing Resources for Cities and Towns. Regarding Boston, the Report highlights two luxury residential buildings totaling 243 condos, The Dalton and Pier 4, demonstrating that Boston would have received $28.8 million in estimated revenue from the sale of condo units over $2 million, from these two buildings alone.

In 2020, MAHT identified more than 5,100 units in Boston’s luxury condo “pipeline” opening over the next two years (see attached chart). New luxury housing production has only accelerated since that date. In October 2021, MAHT identified more than 13,100 luxury high rise condo or rental housing units built since 2013 or in the pipeline in Boston. Passage of the Boston HRP will generate hundreds of millions of dollars for the City from increased transfer fees from sales of these high-end properties over the next several years.

Moreover, a substantial portion of the high end luxury condo sales are to overseas investors seeking a tax shelter or “wealth storage unit” to park speculative cash, with little or no intention of actually living in these units. The buyers and sellers of these super luxury condos can surely afford to pay 2% of the sales price for units selling over $2 million.

The vast majority of Boston’s residential sales, of course, are well under $2 million; the vast majority of Boston’s home and condo owners and buyers would experience no additional tax burden with the passage of H4637. And the luxury sellers would not pay a fee, on the first $2million of the sales price, only on the price above that amount.

In contrast to the other local real estate transfer HRPs, however, Boston’s HRP would also tap into another potentially vast source of revenue, from the sale of office and commercial properties in Boston’s booming downtown, Seaport, and other districts. As the hub of the Eastern Massachusetts economy, Boston has a high proportion of the commercial and office sector and has seen an explosion of new investment over the past 20 years. Allowing Boston to tax transfers over $2 million in this sector, would generate substantial additional revenue not otherwise available to the Commonwealth or smaller cities and towns, with no discernible adverse economic effects.

For example, in the year prior to June 2020, Boston registered 11 commercial/office transactions above $2 million each, totaling more than $2 billion in sales. Four flagship properties alone (245 Summer Street, 101 Federal Street, 109 Brookline, One Marina Park Drive) sold for $1.72 billion of this amount (source: Reonomy Report, 7/25/20). If Boston’s HRP had been in place, these 11 sales alone would have generated more than $40 million in revenue for affordable housing.

Most of the buyers or sellers of these properties, are not based in Boston. But they are benefiting from the enormous speculative boom in commercial real estate, linked to global investment trends, and fueled by Boston’s investment in infrastructure and development rights in the downtown/Seaport areas in particular.

One story will illustrate just how much money Boston—and the Commonwealth—are “leaving on the table.” In 2013, the Swedish construction company Skanska spent $159 million to build 101 Seaport Blvd, which opened in 2015. A year later, in 2016, Skanska sold the building to the German real estate fund, Union Investment, for $452 million—close to three times the development cost. With such extravagant windfalls at stake, a 2% tax would have had no effect whatsoever on this sale. In 2015, Skanska then spent $281 million to build 121 Seaport Blvd next door, selling it to American Realty Advisors and Norges Bank for $455 million in 2018, as the building completed construction. Had the Boston HRP been in effect, the City would have collected $18 million from these two transactions alone.

As the Boston Globe writer Tim Logan commented on April 12, 2016 on 101 Seaport, “The deal reflects the surging demand from foreign capital for trophy real estate in Boston. Roughly half of the major office towers in central Boston have changed hands in the past few years, many to international investors willing to pay top dollar.” While one can debate the desirability of foreign speculators playing Monopoly with Boston’s downtown real estate, there is no question that the City is missing out on a huge source of potential revenue due to the current limitations on the state real estate transfer tax, which has not been raised in 50 years. Taxing these transactions over $2 million at 2% will have no negative effects whatsoever regarding whether these transactions occur, or on the overwhelming majority of Boston’s property owners.

According to the City of Boston, passage of H4637 would enable Boston to reap up to $100 million annually in new revenues over the next five years. Some five times greater than the annual revenue generated by the City’s Inclusionary Zoning process, this additional revenue will go a long way toward addressing the City’s affordable housing crisis. Since luxury
development is itself fueling the over-the-top speculation in real estate values and displacement of lower income renters, particularly people of color, across the city, the least we can do is tap into a small fraction of these speculative profits, to create funds to address the rental housing crisis that result.

Boston is poised to spend this money rapidly, and well. In 2020, former Mayor Walsh created a pilot $5 million/year City funded Rent Subsidy Program from the regular City budget, modeled on the successful Local Rent Subsidy Program operated since 2007 by Washington, D.C. MAHT anchors the City Rent Subsidy Coalition, 32 groups that advocated to create this program and currently advises the Boston Housing Authority on program design and implementation. Today, the pilot program is already a success, housing more than 250 homeless families with children in the Boston public schools or others with urgent housing needs. Mayor Wu has proposed to increase the amount to $7.5 million/year, and the City Council is poised to increase it to $10 million/year. If H4637 is passed, and additional funds are made available, the City and the BHA
will be able to expand rapidly beyond 500 families who will be assisted this year.

Of the $100 million/year which Boston would raise by passage of H4637, if Boston were to dedicate $50 million/year to the City Rent Subsidy program, Boston could provide up to 5,000 Extremely Low Income (<30% of AMI) and/or homeless families with permanently affordable housing. This would go a long way toward getting homeless people off the streets and meeting the low income rental housing need of 21,100 families earning less than $25,000 per year, who need housing assistance to stay in Boston, according to the City’s Housing Plan, Housing a Changing City: Boston 2030.

At present, Massachusetts’ paltry real estate transfer fee ($4.56 for every $1,000 of sales) is dwarfed by New Hampshire ($15), New York ($12.50), Vermont ($12,50) and Connecticut ($10.52), applying to all sales in these states (i.e., no exemptions). If these states can collect as much as triple Boston’s ordinary rate, surely Boston can be allowed to collect 2% on deals over $2 million.

We ask the Revenue Committee to expeditiously and favorably report out H4637, and to urge legislative leaders to pass all these vital measures in the current legislative session. Thank you for your consideration. I can be reached at 617-233-1885 if you have any questions.

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  • Michael Kane
    published this page in Blog 2022-06-08 13:45:58 -0400