Big Fight: Raising Taxes to Fund Affordable Housing

Any deal on sweeping housing reform is likely contingent on finding a giant pile of money for affordable housing. Tuesday’s House Finance Committee meeting featured one potential source of that pile: Higher taxes on real estate transactions.

House Bill 1628 from Rep. Frank Chopp, D-Seattle, would raise the top rate for the state real estate excise tax, knowns as the REIT, to 4 percent on transactions of more than $5 million. The top rate is currently 3 percent, which kicks in for transactions of more than $3,025,000.¹ Aside from a few ridiculous houses, that’s a tax on sales of apartment buildings and other commercial property.

The bill would also allow local governments to levy an additional .25 percent REIT, on top of the .5 percent that most of them levy.² That’s an additional tax on all real property transactions. For example, it tacks $1,250 onto the price of a $500,000 house.

The money at both the state and the local levels — more than $700 million per year — would be largely earmarked for affordable housing. That would essentially create a system by which the taxation on market-rate property pays to build and maintain housing for folks who are largely shut out of that system.

That new mountain of cash thrills advocates at the Washington Low-Income Housing Alliance and local leaders with the Association of Washington Cities. They told the House Finance Committee on Tuesday the bill will build affordable housing that the private sector won’t ever build for people at the bottom of the tax bracket.³

But make no mistake, this will be a straight-up dogfight. This kind of thing makes heads explode in the real estate world. The Washington Association of Realtors and allied groups argued that the bill would drive the state’s real estate taxes to the highest in the nation, push up rents, and discourage the development of new buildings.

The Realtors, who love them hardball politics, are likely to go to the mattresses⁴ if this proposal shows legs. They’re already spending heavily to support other elements of their policy agenda this year, and they carried out a cold-blooded political assassination in 2020 over a comparatively trivial change to the REIT that is actually rolled into a provision of HB 1628.

So will the boost in REIT show legs? Frank Chopp, the former Speaker, is not to be underestimated as a dealmaker. He’s got 30 co-sponsors in the House, and a leftward shift in the Democratic majority in the Senate makes that chamber look less like a graveyard for this kind of idea. Heavy spending by the Realtors and others last year failed to halt that leftward shift. Meanwhile, the bill has prominent supporters in local governments from the affluent communities around Seattle, which may give lawmakers from those areas cover to vote yes.

Cutoff Drama: Drift nets drag down other bills

There was a bit of a legislative bloodbath last week in Senate Agriculture, Water, Natural Resources & Parks when Chair Kevin Van De Wege killed most of the bills left in his committee after a deal collapsed on a proposal to reduce gill-net fishing for salmon in the Columbia River.

Van De Wege, D-Sequim, has long tried to get rid of the remaining non-tribal⁵ gillnet fishery on the Columbia, siding with conservationists who argue that the nets ensnare far too many endangered wild salmon. The idea always faces fierce pushback from commercial fishing interests and many of the state’s Native American tribes, who view it as a backdoor reallocation of fish to recreational fishermen.

Van De Wege had been working a compromise version of Senate Bill 5297, but the deal fell apart as Friday’s cutoff deadline neared. So he summarily killed most of the remaining bills on the agenda.⁶

Some of those bills will live on as provisos in the budget, but much of it is dead for the year. Among the bycatch⁷ was Senate Bill 5664, a bipartisan measure that would have required salmon sold in Washington State to carry a label specifying whether it was wild-caught or farmed and if it contained red dye, a common practice in salmon farming.

Footnotes:

1. The tax is graduated, starting at 1.1 percent for the first $525,000. So, for a hypothetical small apartment building costing $3,525,000, the current state bite is $74,825: $5,775 for the first $525,000; $12,800 for the next $1,000,000; $41,250 for the next $1,500,000; and $15,000 for the final $500,000.

2. There are actually several local options for REIT, but most places levy REIT 1 and REIT 2 at .25 percent apiece.

3. Of the million new homes the Washington Department of Commerce reports the state will need over the next 20 years, half of them will need to be affordable.

4. For the record, this is a reference to “The Godfather,” not a meta-reference to “You’ve Got Mail.”

5. The state doesn’t control Native American gillnet fisheries.

6. We’re told that Senate Bill 5597, which would require kayakers and other operators of nonmotorized watercraft to carry a $10 “paddle education card,” didn’t have the votes regardless.

7. For folks unfamiliar with commercial fishing jargon, bycatch is the critters inadvertently caught in a net set for another species. This is no bueno when the bycatch is an endangered species.

This article first appeared in the author’s website, Washington Observer.