Transfer Fee Tax and the New Left

sidewalks

Active Member
Joined
Oct 10, 2006
Messages
696
Reaction score
88
As many of you may have seen, a wave of new fees and regulations are being discussed by politicians in Massachusetts. They range widely, from rent control to transfer tax fees of 6% to "flip" fees of 20% for properties sold within two years of acquisition. The common sentiment, perhaps even among those on this site, is: 'we need affordable housing and rich developers can afford it.' What this sentiment misses, however, is the overall impact of such policies on future housing production. It's very simple: if I cannot profit from appreciating value, why would I risk capital in the first place? If that sentiment spreads, you have a decline in asset values. The result of that decline would be that new development no longer makes sense. Most projects are on the bleeding edge of viability. I am planning a multifamily project that, if everything goes just right, will have a rate of return of approximately 5.7% when finished. If investors are no longer willing to value the stabilized asset at 4.5%, then the banks will not offer me financing, nor will I wish to risk personal financial ruin (as I have to offer a personal guarantee on the construction loan) in order to build the project. That effect will ripple across the market and new projects will churn to a halt. It's unlikely that the industries driving Boston's growth will suddenly retreat, so existing condos will continue to increase in value, pushing further out of reach for all but a small minority.

People in the real estate industry seem to be blissfully unconcerned about these initiatives. That reaction is misguided. When people realize the impact of these policies it will likely be too late.
 

Johnnyrocket891

Active Member
Joined
Jul 1, 2019
Messages
170
Reaction score
108
"According to the new (CCO) Condominium Conversion Ordinance being sponsored by the city of Somerville:
The new CCO takes away your fundamental right to control YOUR private property.
Owners of 2-3 Famliy homes can no longer convert or sell to a developer to convert there private property, without offering units "as is" to tenants a "non-profit" or to the city before offering it to the open market."

It seems Boston and the surrounding towns are quickly following the quack laws of California.

These types of restrictions of the CCO will devalue your property because now it are locked into offering the property to a tenant or the city.
 

George_Apley

Not a Brahmin
Staff member
Joined
Jan 22, 2012
Messages
5,078
Reaction score
1,637
This isn't something I feel super confident debating, but for context, here's the city's official response to that flyer Johnnyrocket quoted:

City of Somerville said:
Flyer: “The new CCO takes away your fundamental right to control YOUR private property.”
City: There has been a condominium conversion ordinance in Somerville since 1985. Property owners always had to appear before the Condominium Review Board to convert existing property to condominium units.

Flyer: “Owners of 2 and 3 family homes can no longer convert, or sell to a developer to convert, their private property, without first offering units ‘as is’ to tenants, a ‘non-profit’, or the City and before offering to the open market.”
City: The tenant right to purchase already exists under both state law and Somerville’s current ordinance. The City/designee right to purchase is a new provision and runs concurrent with the tenant’s right – no additional time is added for the City/Designee. The right to purchase is structured so that the price, which is set by the owner, will reflect current market values.

Flyer: “Tenants now have up to 7 years to move out of your property!”
City: All tenants are entitled to one years’ notice. Seven years is the maximum, which only applies if a property owner willfully neglects to fulfill their obligation to assist in housing search for vulnerable tenants who are either low/mod income, elderly and/or disabled being displaced through conversion. Otherwise, vulnerable tenants who are either low/mod income, elderly and/or disabled are entitled to five years’ notice.

Flyer: “During this time: You are not allowed to raise rents without permission from the City. You cannot improve your units without permission from your tenants.”
City: City review of rent increases is done to verify that the rents do not exceed market rents. Necessary repairs required by State Sanitary and Building Code are permissible, and vacant units can be renovated during the waiting period. Cosmetic and other discretionary improvements that have in the past had the effect of disrupting tenant ‘quiet enjoyment’ rights to their units are limited.

Flyer: “You must pay up to $10,000 to relocate your tenants! You must find ‘comparable’ housing within the city of Somerville for your tenants!”
City: All households are entitled to a relocation payment of $6,000.The $10,000 payment provision is limited to especially vulnerable households including elderly, disabled or low/mod-income tenants. Owners must make a good faith effort (defined in CCO Rules) to assist vulnerable tenants who are either low/mod income, elderly and/or disabled in finding comparable housing.

Flyer: “The restrictions of the CCO have now devalued your property because it makes it harder to sell.”
City: City staff are unaware of any empirical data demonstrating that the ordinance has devalued property since its passage.

Flyer: “Your tenant, a nonprofit or the city can buy your property, without first offering it to the open market – develop the property themselves and FLIP it at a profit, and capitalize on your loss.”
City: The tenant right to purchase is recognized by state law. If the City/Designee were to purchase a property, it is required to be for the purposes of maintaining the unit as an affordable unit, in perpetuity. In other words, it cannot be sold at a profit.

Flyer: The city is setting the rules for how, when and to whom you sell your property.
City: This ordinance only applies to transactions involving Condominium Conversion. All other transactions are not impacted. Condominium Conversion remains allowable, so long as owners abide by the Ordinance.
 

HenryAlan

Senior Member
Joined
Dec 15, 2009
Messages
2,755
Reaction score
970
I think a stronger distinction needs to be made between existing asset appreciation and new development. Capital that is parked in an appreciating asset but not used for productive purposes should absolutely be taxed. Most of the proposals I've seen lean more in that direction than in the direction of decreasing ROI on new projects. It is possible to structure tax policy to incentivize new construction and disincentivize profiting on a market bubble.
 

Top