Rhode Island needs more affordable apartments and houses. Most housing experts agree on this. But should state funds for home creation come from luxury buyers and sellers, and businesses that are selling property?
A program introduced by Gov. Gina M. Raimondo as part of the fiscal 2021 budget proposal would create a dedicated funding source for affordable and workforce housing through an additional tax on real estate sales in excess of $500,000.
Called the Housing and Community Development Act, it includes a new tiered tax that would apply a $4.60 assessment to every $500 in excess of $500,000 on residential and commercial sales, or 0.92% of the sale price over that mark. The proposal will not affect properties less than $500,000, which already pay a 0.46% tax rate.
State officials say the tax will produce $8 million annually once fully operational.
The tax represents the funding stream long sought by housing advocates, who say moderate-income families and individuals are having increasing difficulty finding affordable apartments and homes.
Brenda Clement, executive director of HousingWorks RI at Roger Williams University, said she was pleased that affordable-housing production was elevated in Raimondo’s budget plan, and she noted that a similar tiered tax is used in areas near Rhode Island, including parts of Cape Cod in Massachusetts.
She anticipates opposition from those in the real estate sector, which historically has opposed increases in real estate transfer taxes. “As housing advocates, we have our work cut out for us, to let [everyone] know what other communities are doing,” she said.
In 2015, in Raimondo’s first budget as governor, she proposed a tax on the sale of second-home properties valued at $1 million or more. The proposal was swiftly opposed by a variety of groups, including the Rhode Island Association of Realtors, and was never considered by lawmakers.
That proposal would not have dedicated funds to housing creation. This year, administration officials say the need for moderate-income housing is becoming more acute, as rising home values and rents have started to escalate.
If approved by lawmakers, the program would replace the sporadic state appropriations for housing, through voter-approved bonds, with a multifaceted approach. Additional changes would include incentives for communities to build more affordable housing, by providing at least partial state reimbursement for increased education expenses.
The programs are aimed at providing more housing stock for people who earn between 80% and 120% of the median income, which in Rhode Island ranged from $59,600 to $89,400 for a family of three last year, according to federal statistics.
The new tax would apply to about 11% of the properties sold annually, according to R.I. Commerce Secretary Stefan Pryor.
Rhode Island is the only state in the Northeast that lacks some form of a dedicated revenue source for affordable housing, he said, adding that the proposal is modest and will not have a significant effect on the real estate market. “And when we invest in housing, through these multiple mechanisms, it will increase the health of the market as a whole,” Pryor said.
Mary MacDonald is a PBN staff writer. Contact her at Macdonald@PBN.com.
