Washington Democrats are again looking to raise taxes on expensive property sales to help pay for affordable housing.
A bill that dropped Tuesday would add a tax to the sale of real estate over about $3 million. Revenue from that tax, estimated at just under $300 million every two years, would provide a funding stream to pay for affordable housing projects. The bill would also decrease the tax rate for property sales under $750,000.
“We’ve made a commitment to housing,” said sponsor and House Finance Chair Rep. April Berg, D-Mill Creek. “We’ve made a commitment to Washingtonians to help them at their kitchen tables with their expenses. This bill does both.”
This idea is not new, Berg said. It builds on a similar proposal last year that would have raised the real estate excise tax at the state and local levels to fund affordable housing. That bill, sponsored by Rep. Frank Chopp, D-Seattle, never made it out of the House, despite a late-session push by lawmakers to get it over the finish line.
Realtors and property owners sharply criticized the part of the previous bill that allowed local governments to raise real estate excise taxes – which are taxes on the sale of property.
Chopp told the Standard earlier this month that the new version of the bill eliminates the local option and focuses only on modifying tax rates at the state level.
He called the current proposal “very progressive” because it would lower the tax rate for people selling less expensive property, raise it for pricier sales, and help expand low-income housing.
“We need an ongoing revenue stream to help pay for affordable housing,” Chopp said.
Republicans see the situation differently and argue that the tax proposal could raise the sale price of apartment buildings and, in turn, rent for tenants.
The numbers
The state’s real estate excise tax taxes property sales at different rates based on price tiers.
Currently, the first tier – all properties sold at $525,000 or less – is taxed at a 1.1% rate. The top tier – properties sold for more than $3,025,000 – is taxed at 3%.
Under the new proposal, the first tier would expand to include all properties sold for $750,000 or less, beginning in 2025. Berg estimates this change could give most property owners in Washington a break on the tax.
Additionally, properties in the highest tier would incur a 1% real estate transfer tax on any portion of the sale price over $3,025,000. That’s in addition to the 3% real estate excise tax.
Berg estimates that revenue from the new 1% transfer tax would bring in about $283 million every two years after it goes into effect.
That money would be split between five accounts that fund affordable housing construction in Washington.
“This is going to give our affordable housing partners a sense of certainty so they can make commitments to future projects,” Berg said.
Three-quarters of the money would be split evenly between the Housing Trust Fund, which gives out grants for affordable housing projects; the Home Security Fund, which provides money for homelessness programs; and the Apple Health and Homes account, which provides housing to people with health and behavioral health challenges. Five percent of the money set aside for the Housing Trust Fund will go specifically toward farmworker housing.
Fifteen percent of the money would go toward a new account to fund housing and services for people with developmental disabilities.
The remaining 10% will go to a new housing stability account, which will fund maintenance and service costs for operating low-income housing.
Republicans not onboard
The bill is likely to face hurdles in this year’s 60-day session. Republicans are already staking out opposition.
House Minority Leader Drew Stokesbary, R-Auburn, said that while there may not be many people in the state buying and selling $3 million-plus single-family homes, the transfer tax could also apply to apartment buildings and other multi-family housing. And that added cost, he said, could be shifted onto renters.
“You can’t make housing more affordable by making it more expensive,” he said.
Senate Minority Leader John Braun, R-Centralia, said a new tax would only drive up living costs for families already struggling to make ends meet. His comment echoes a broader Republican message this election year that Democratic policies are making the state less affordable.
Berg noted that nonprofit and low-income multi-family housing is already exempt from the real estate excise tax, but all market rate properties that currently pay will be affected.
She said she is optimistic that this is the year the bill passes and that it addresses what constituents are urging lawmakers to focus on. “Housing, housing, housing,” she said. So far, the bill has 36 co-sponsors in the House, all Democrats. “It is an absolute priority,” Berg said.
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