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Compromise plan may give Boston a 2 percent tax on larger real estate sales

In June, proponents worked to support Governor Charlie Baker’s plan to increase the state real estate tax; that measure is still pending.
In June, proponents worked to support Governor Charlie Baker’s plan to increase the state real estate tax; that measure is still pending.David L. Ryan/Globe Staff/File 2019/Globe Staff

Big-dollar real estate sales in Boston could face a tax that would raise hundreds of millions of dollars for city housing programs, under a plan set to get its first vote this week.

The City Council on Wednesday will consider a measure to allow a tax of up to 2 percent on real estate transactions of $2 million or more — including homes and apartment and office buildings. It has the support of Mayor Martin J. Walsh, and with his signature would head to the state Legislature for a vote.

The measure, which a City Council committee on Monday recommended for passage, is a compromise between council members who had pushed for a tax as high as 6 percent and Walsh, who supported the idea in general but was concerned about its effect on development and the housing market.

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Even at 2 percent, a real estate tax would have raised $169 million a year, on average, over the last decade, according to a recent city report.

The prospect of that kind of money — which far exceeds the city’s current budget for affordable housing — has drawn support from housing advocates and some city councilors.

“We are in a housing crisis, and we need to make sure we’re working to address it,” Councilor Ed Flynn said at a hearing last week. “This is a small step, but it’s a starting point.”

Those in the real estate industry, however, say the measure could bring down home prices and perhaps slow construction at the higher end of the city’s housing market. They also warn that while the bulk of the taxes may be paid by out-of-town investors who buy and sell office towers and apartment buildings, the levy would also translate into higher rents for tenants and companies.

Until now, Walsh has been largely noncommittal on the subject, commissioning a study of such taxes elsewhere and how one might work in Boston.

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Last Wednesday, his chief financial officer, Emme Handy, told the City Council that the mayor “would like to support” the measure but still had concerns about the details. Since then, a compromise has been worked out, capping the tax at 2 percent and exempting sales below $2 million. A spokeswoman said the mayor supports the revised measure.

Wednesday is the last meeting of the current City Council, which means that any bills that do not pass would need to be refiled next year, with new members and probably a new round of hearings.

Should the council pass the measure and Walsh sign it, Boston would join a growing list of cities and towns with home rule petitions on real estate taxes that are awaiting legislative action. Somerville, Concord, and Nantucket all have measures pending, said Ellen Shachter, a Somerville city staffer who’s helping to lead a regional effort on so-called transfer taxes.

Brookline voted to approve one just last week, and Cambridge and Watertown are considering them. Having Boston, the state’s largest city, on board would help build support on Beacon Hill, Shachter said.

“There’s a lot of momentum,” she said. “But to get this passed [by the Legislature] we’re going to need a lot of people lined up.”

Other Boston home rule petitions opposed by the real estate industry, such as a slate of proposed tenant protections known as the Jim Brooks Act in 2018, have died in the Legislature.

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And Governor Charlie Baker has already proposed increasing the state’s real estate transfer tax by 50 percent — adding $1,200 in taxes on the sale of a $500,000 house — to help fund climate programs. That bill remains in committee.

Should legislators approve the Boston measure, it would then go back to the City Council for a formal vote to set the tax rate and to the mayor for his signature.


Tim Logan can be reached at tim.logan@globe.com. Follow him on Twitter at @bytimlogan.