Meet the new millionaires tax.
Tucked in the Healey administration’s bold housing bond bill is a proposal to allow communities to adopt a real estate transaction fee of 0.5 percent to 2 percent on the portion of a property sale over $1 million. The money would go toward affordable housing programs.
The administration is trumpeting the measure as affecting “fewer than 14 percent of all residential sales.”
My reaction: gulp, that’s a lot of people who could get slapped with a new tax, given the high price of housing in Greater Boston. Over time, the fee could hit even more households if property values keep rising.
We’re not just talking about the yacht-loving people of Nantucket. The fee would affect transactions in Westwood, where the median single-family home sale price is $1,110,000; in Arlington, it’s $1,172,500, while in Needham it’s $1,355,000 and in Winchester, it’s $1,417,500, according to data from the Warren Group.
So far this year, about 18 percent of the 30,665 single-family home sales have been over $1 million, according to Warren.
Governor Maura Healey’s proposal makes me feel wistful about what the Boston City Council and Mayor Michelle Wu are seeking: a fee of up to 2 percent on real estate transactions of $2 million or more.
The governor’s proposed transfer tax follows voter approval last fall of the ballot measure known as the millionaires tax, which raised the state’s 5 percent tax rate to 9 percent on income exceeding $1 million. The new tax, which took effect Jan. 1, aims to raise $1 billion annually to improve education and transportation.
That millionaires tax affects a small share of households in Massachusetts — less than 10 percent will ever pay the surcharge in their lifetime, according to Evan Horowitz, executive director of the Center for State Policy Analysis at Tufts University, who has studied the issue.
But Healey’s proposal to add a tax on residential sales over $1 million could, over time, hit about 30 percent of households as property values rise, Horowitz estimates. While the fee is paid by the seller, the cost will likely be built into sales prices so both sides end up bearing the cost.
Horowitz said the proposal will likely have the unintended consequence of making homes more expensive and putting homeownership out of reach for more buyers.
“This is not what’s needed,” Horowitz said. “It’s one more thing that puts it out of your price range.”
This is how Healey’s transfer tax would work: First, the local municipality would need to decide if it wants to impose a fee on real estate sales. The fee can range from 0.5 percent to 2 percent and would only apply to the portion of the sale over $1 million. (If a county’s median sales price exceeds $1 million, the tax wouldn’t kick in until it surpassed the higher threshold, under the proposal.)
So if your home sells for $1.2 million, the fee would be assessed on $200,000. If the fee is 2 percent, that comes out to an additional $4,000.
Steve McKenna, a real estate broker at Gibson Sotheby’s, said he is dealing with an elderly couple contemplating whether to sell their $1.1 million home in Arlington and whether they can live off the proceeds. They bought their home in the early 1970s for $80,000 but refinanced a few times to put their three children through college and pay for health care expenses. The couple still owes $410,000 on the mortgage.
“People selling their houses for a million dollars, they’re not rich,” said McKenna.
The proposed transfer tax is part of an ambitious $4.1 billion bond bill to create 40,000 new homes through an infusion of money and 28 policy changes. The tax could provide a stream of funding for affordable housing. One administration analysis estimates that $329 million could be raised if every town adopted a 1 percent fee.
Business groups staunchly opposed the original millionaires tax, saying it would hurt the state’s competitiveness. They don’t like the transfer tax either.
In 2023, Massachusetts was ranked No. 34 in the Tax Foundation’s annual rankings that measure how tax-friendly a state is. The new rankings that come out this week will, for the first time, factor in the millionaires tax ballot measure. Massachusetts is expected to tumble toward the bottom; an earlier foundation analysis had projected that the state would fall to No. 46.
In other words, the Taxachusetts label the state worked so hard to shed is back.
While a new tax may seem like an unpopular idea, a dozen municipalities and cities — including Somerville, Concord, and Martha’s Vineyard — have asked the Legislature to allow them to impose transfer fees. The idea has even garnered support from the massive hospital system Mass General Brigham because the housing crunch exacerbates public health disparities and leads to staffing shortages.
As for whether it will drive up housing prices, a spokesperson for the state Executive Office of Housing and Livable Communities said studies of transfer taxes in Toronto, Germany, and Australia show that it led to lower prices.
Everyone agrees Massachusetts’s housing crisis requires bold solutions. Now it’s a matter of who pays.
So here’s an essential question as Healey seeks legislative approval of her housing bond bill: Is the transfer fee another tax on millionaires, or is it a tax on the middle class?
Shirley Leung is a Business columnist. She can be reached at email@example.com.