On behalf of the more than 23,000 licensed member professionals of the Massachusetts Association of REALTORS® (MAR) and10,000 members of the Greater Boston Real Estate Board (GBREB) we write in respectful opposition to H.5457 and H.5487. While they are well-intentioned, the bills would add additional costs for development projects and housing, which will exacerbate the Commonwealth’s housing supply crisis.
Taxing real estate transfers hurts housing diversity and commercial redevelopment.
Transfer taxes and surcharges will deter both residential and commercial property development and rehabilitation by unduly burdening a wide variety of real estate interest transfers, including sales. Creating new taxes, especially on real property development or investment, in the wake of the MBTA Communities Act and the Affordable Homes Act, would move the state backwards. They are unfair, taxing the small percentage of taxpayers who buy or sell real property. They also decrease the housing supply, magnifying an already severe inventory shortage of all housing types and increasing prices for homes below the tax threshold. This will harm the middle class, who, for example, already face a $1 million price tag for the average home in Greater Boston and many communities on Cape Cod. Taxing homes and apartments will increase income stratification, raising the already expensive market rate price to become a homeowner or renter. Ultimately, these taxes discriminate against those looking to enter communities in favor of current residents, constraining community diversity and inclusivity.
In 2024, an economic analysis by Professors Gilles Duranton, Lu Han, and Matthew Turner conducted on behalf of the Massachusetts Real Estate Community Alliance[1] evaluated a potential transfer tax in the Commonwealth. The study is especially important because it looks beyond the surface promise of new revenue and instead evaluates how people actually respond to a transaction tax in the housing market. The report identifies two central economic mechanisms: the lock-in effect and the pass-through effect.
First, the “lock-in effect.” A transfer tax is triggered only when a property is sold, which means homeowners can avoid the tax simply by choosing not to move. The research finds that even a relatively small transfer tax significantly reduces home sales - approximately a 10% decline in transactions for every 1% tax. In practice, this means families delay or forgo moves they otherwise would make. Empty nesters stay in homes that are too large, growing families remain in homes that are too small, and workers are less able to relocate closer to jobs. Instead of improving housing availability, the tax discourages turnover and reduces the number of homes available on the market.
Second, the “pass-through effect.” Although the tax is levied on the transaction, the economic burden does not stay where the law places it. Buyers anticipate paying the tax and lower the price they are willing to offer. As a result, the cost is pushed back onto sellers in the form of reduced property values - depressing home prices by about one dollar for every dollar of tax.
Together, these effects shrink the bases of existing taxes so much that the new tax would actually lead to a net loss in tax revenue of $242 million per year. The study concludes that the proposed tax would not only fail to generate reliable new funding, but would also make it more difficult for Massachusetts residents to find housing that fits their needs while weakening overall fiscal performance.
Commonwealth-wide priorities like affordable housing and zoning reform should not be borne of a small segment of our real estate marketplace, especially when viable solutions exist to fund these priorities. Massachusetts needs to continue to explore policies that will help develop all types of new homes to meet our 222,000-housing unit shortage. For the foregoing reasons, we ask that you give an unfavorable report to the above-named bills.
[1] See The Negative Impact of a Massachusetts Real Estate Transfer Tax on Fiscal Revenue and Household Mobility, Duranton, Han, and Turner, May 2024, https://www.massrecommunity.org/wp-content/uploads/Duranton_Han_Turner_unp_2024print.pdf.