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Preliminary Thoughts on Real Estate Transfer Fees

In coming weeks, the Council will take up a proposal to consider a Real Estate Transfer Fee Home Rule Petition. Before we get into the weeds, I wanted to share a little background, from my perspective, on what we’ll be discussing and why. 

First, on the format of the paper itself: this a proposal for a home rule petition, not an ordinance. An ordinance is a local law; a home rule petition is a City asking the State House for permission to do something that a City is ordinarily not empowered to do. Then the state delegation for that community votes on whether or not to grant the petitioning City that power, or not. 

Why contemplate a transfer fee at all? Because we have existing, severe needs for additional affordable housing in the community and not enough sources of funding to create it. Per Medford’s Housing Production Plan, to achieve the state’s minimum affordable housing threshold per MGL Ch. 40B, we need to be creating 120 affordable units per year. To put that in human terms rather than wonky statistics terms, we know that many people in Medford are burdened by housing costs or can’t access the kind of housing they really need because it’s too expensive. Our existing funding streams are not sufficient to address the severe shortage of affordable housing with the urgency and effectiveness that is required. 

Is a transfer fee the only mechanism we should look at to fund the Affordable Housing Trust and affordable housing production and programs in Medford? No, absolutely not. But it’s a mechanism that the Governor has proposed in her Affordable Homes Act as a local option, and I don’t believe we are at a point where we can afford to dismiss any viable, potential funding stream out of hand. From the Healey administration’s press release about the Affordable Homes Act: 

New policy initiatives that would be available to communities include the local option of adopting a real estate transaction fee of 0.5 percent to 2 percent on the portion of a property sale over $1 million – or the county median home sale price. This fee–projected to affect fewer than 14 percent of all residential sales--would be paid by the seller of the property with the money to be used to fund affordable housing developments within the community.

Should the Act pass with that provision still in it, communities would be newly empowered to enact a real estate transfer fee, or not, at their discretion – no home rule required. But while the Act is still being deliberated, Home Rule Petitions are a way for Cities to advocate for the measure: the more home rule petitions are sent to the State House asking for this power, the more it sends a message to the Governor and legislators that this is something Cities are ready and wanting to take up. 18 communities have already put forth home rule petitions for Real Estate Transfer Fees.

Back into the hypothetical weeds, briefly: What are the parameters for real estate transfer fees? Such a fee would take a little bit off the top of only certain, high-value real estate transactions, to create a sustainable funding stream for that critically-needed affordable housing production in Medford. Defining what “certain” and “high-value” would mean for our community is up to the Council, but as a starting point, Gov. Healey’s housing bill proposes a transfer fee of between 0.5% and 2% on the portion of the sale over $1M or the county median sale price.

I am sure we will debate all those details, and if certain types of housing (one- or two-families, etc.) should be exempted outright. But the point, and the goal, would be to recoup a small fee from what are essentially luxury housing transactions and earmark that for affordable housing production via having the fees flow into the Affordable Housing Trust (established by the Council last year and currently waiting for Trustees). By no means would a transfer fee adequately fund the Trust all on its own; but it could be a meaningful piece of the puzzle. MassBudget has created a useful tool for estimating how much revenue the transfer fee could raise, under different scenarios, for affordable housing for each City in Massachusetts. 

What might come next? Eventually the Affordable Homes Act will be passed in some form, almost certainly with some changes, additions and subtractions from the initial proposal because that’s how legislation works; we will have to wait to see if the real estate transfer fee remains in. For now, what’s within our jurisdiction is to put forward the proposal for a home rule for the transfer fee and take it from there.

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