1% Realty Transfer Tax Increase (insurance, mortgage, refinance)

[Merge]

More information about where this initiative is coming from:

Pittsburgh advocacy groups to seek ballot initiative to fund affordable-housing trust fund | Blogh | Pittsburgh | Pittsburgh City Paper

[tyovan4]

I would be against this, as it is a barrier for working-class and middle-class folks to be able to afford a home to buy. I also don't see how this would be beneficial for the City in the long-run - tax-paying middle class folks would be more likely to buy in the suburbs, thus making the City even more into a land of haves and have-nots.

[RyanR]

Originally Posted by Merge

More information about where this initiative is coming from:

Pittsburgh advocacy groups to seek ballot initiative to fund affordable-housing trust fund | Blogh | Pittsburgh | Pittsburgh City Paper

That's funny right there...

Raise the taxes on buying a house to create an affordable housing fund.

I just shake my head.

[lprmesia]

Very few places across the country have municipal level transfer taxes - it's typically done statewide with very few exceptions (PG County MD has this extra type of tax).

PA already has much higher than average Title Insurance premiums which are a huge portion of the closing costs (especially in a new purchase), but this is somewhat offset by having low to average recording costs (for being a state that does not impose a recording tax which is found in several states such as FL, MD, and NY to name a few).

If trying to generate revenue while trying to slow any perceived potential real estate bubble is the desired outcome for this tax, there are better ways to do it. Let me explain:

Your two most common types of real estate transactions are Purchases and Refinances. The difference in cost between a purchase and refinance is already much higher in PA than many other states. Two high cost things present in a purchase not typically found in a refinance are:

• Transfer Taxes
• Owner's Title Insurance Premiums (which are state set prices by the TIRBOP)

Many states have imposed a Mortgage Recordation Tax as an alternative which is assessed on the value of the property OVER the original purchase price. Meaning, instead of having a high transfer tax, you'd still pay a slightly lesser rate during closing, and then only a partial rate at a later refinance. Let me give a proposed scenario.

Right now, let's say you want to buy a house for $100K and the transfer tax is 4%, you'd pay $4K in transfer taxes at closing. Since you typically are doing a purchase at close to an appraised value, you're having to pay these fees out of pocket which hurts and discourages potential buyers. Appraisals are based on actual transactions, if there are fewer comparables in the area to base an appraisal, housing prices can flatten. Factor in a few more grand in Title Insurance premiums, you're likely not going to buy.

Right now if you did buy, you currently can refinance and tap into equity pretty easily in your homes since:

• #1, we haven't raised the transfer tax higher than it is further discouraging new purchases which quantifies home values in your areas to give a baseline new appraisal.
• #2 You're not having to pay an owner's premium again and the lender's premium is going to be a reduced rate
• #3, there's no transfer tax this time since the property is yours
• #4, you'll have equity in the home, so closing costs can typically be paid for entirely out of equity, typically only costing the borrower an appraisal fee out of pocket.

A better solution might be to not raise (and instead lower) transfer taxes and instead impose a mortgage recordation tax. Let's say it's 2%. That way instead of 4% transfer tax, it's 2% transfer tax and 2% mortgage tax being a "wash" but would generate new revenue during each refinance which can be easily absorbed into closing costs instead of requiring more cash up front on the purchase for a buyer. Here's what it does if you refinance:

• #1, by reducing transfer tax to say half of what it is and imposing a mortgage tax of the other half (2% - making it still 4% total), it's still not going to deincentivise new purchases which quantifies home values in your areas to give a baseline new appraisal.
• #2 You're not having to pay an owner's premium again and the lender's premium is going to be a reduced rate still
• #3, there's no transfer tax this time since the property is yours, but the mortgage tax of 2% would be based on the new value (meaning is you refinanced for $120K now since the house is worth that, you'd only pay Mortgage Tax on the extra $20K over the original loan).
• #4, you'll have equity in the home, so closing costs (including the mortgage tax) can typically be paid for entirely out of equity, typically only costing the borrower an appraisal fee out of pocket.

Did I lose anyone? Basically, it's kicking the can down the road to the buyer once they refinance and already have equity in the home to pay for the additional tax, instead of assessing it on the front end and discouraging the sale (which in turns slows the rate growth of equity in the area for people refinancing as well).

TL;DR
Increasing transfer tax is bad because it requires more upfront money and discourages buyers. Proposing a mortgage recording tax is a more affordable solution to buyers while providing additional tax dollars.

[robrobrob]

Originally Posted by xdv8

I am very against this even if they exempt first time and low income buyers. A very lazy way to get an affordable housing fund.

I think it is equally as important for buyers moving on from their starter home to their forever home. Sure these buyers make more money but their home is also likely to cost much more.

[yinzer93]

Originally Posted by Merge

More information about where this initiative is coming from:

Pittsburgh advocacy groups to seek ballot initiative to fund affordable-housing trust fund | Blogh | Pittsburgh | Pittsburgh City Paper

Would it have a realistic chance of passing? Or even making it to the ballot? Thoughts? (Read: not just pessimistic lamentations on woe is me and my wealth) But 1% does seem steep.

[eschaton]

I simply don't understand why they couldn't have proposed the fund be paid for through an increase in the mil rate rather than the transfer tax. Pittsburgh's overall property tax rate honestly isn't that high (due to our higher income tax) but our transfer tax is.

[RyanR]

Originally Posted by eschaton

I simply don't understand why they couldn't have proposed the fund be paid for through an increase in the mil rate rather than the transfer tax.

I simply don't understand why they couldn't have proposed the fund be paid for through charitable donations or other non-taxing means rather than the transfer tax.

There. Fixed it for 'ya.

From the article, "The flier for the ballot initiative says the fund will rehabilitate 270 homes for renters, create 234 new affordable homes, and provide rental assistance to 180 families each year."

In the end, aren't these going to be privately owned homes occupied by renters? Whom are the homeowners and why are they getting millions in tax dollars to rehab the homes they're renting out?

[Moby Hick]

Originally Posted by RyanR

There. Fixed it for 'ya.

That's not fixing anything. That's completely changing the meaning of his post in an absurdly passive-aggressive way.

[yinzer93]

Originally Posted by Moby Hick

That's not fixing anything. That's completely changing the meaning of his post in an absurdly passive-aggressive way.

Seconded. If charity worked enough to fix problems like this, then there wouldn't be a perceived need to tax it. The atrophy of fraternal benefit societies in the decade before the Great Depression, in part due to being perceived as no longer needed, and their resulting inability to provide serious assistance to the poor and destitute in the 1930s highlights this cycle well.

This doesn't mean a 1% transfer tax is the solution to Pittsburgh's affordable housing stock, either.