Idea: Fund Affordable Housing

Editor's Note: On February 6, we asked BlueOregon readers to suggest progressive ideas that the next Oregon Legislature should enact. Over the next several weeks, we'll post some of these ideas here - and ask you to discuss them. Good idea? Bad idea? Any suggestions?

From a pseudonymous commenter called "Affordable Housing Advocate":

We need a long-term source of affordable housing funding. A prominent option is creating a Real Estate Transfer fee. Transfer Fees are small fees charged at the time of sale or transfer of real estate. Fees are usually a small percentage of the sale value, usually less than 1%, or even be a flat dollar amount against increments of the final sale price.

These fees are smart because they are automatically indexed against the the appreciation in property values and are only imposed at the time of sale. They are a long-term, structured solution through their link to the rise and fall of the housing market.

Some quick background research has shown that over thrity five states have a Real Estate Transfer Fee of some sort in place. These fees are also called document recording fees, or document stamp taxes and are primarily used for general revenue or for infrastructure development costs. Oregon has a small one ($40 or so I believe)that is shared between the County and the state's general fund.

However, twelve states use their real estate transfer fees or documentary stamp taxes as dedicated revenue streams for housing trust funds.

Currently ORS 306.815 prohibits any jurisdiction to create their own real estate transfer fee. We need either to do this at the state level or remove the prohibition and let local voters make up their own mind about the importance of affordable housing.


[If you have your own original progressive idea to propose, do it here: "There oughta be a law."]

  • jfe (unverified)

    Why always is the TAX the first out of the box for Democrats? What about spending the money you have more wisely. RIGHT NOW in Portland huge amounts of tax dollars are being spent on affordable housing: Pearl District, South Water Front. THERE IS A BETTER WAY! I call my idea: the second story program. I have walked around many parts of Portland and have looked up one story. There are many building that have second stories or more where there are apartment spaces which could be remodled or upgraded to affordable housing. This does several things: remodling removes blight in more neiborhoods, spreads out interest to more property owners(not just a few connected developers, which is happening now), more bang for the buck(remodling is cheaper than new construction), and revitalizing more neighborhoods. Do we want to upgrade flophouses to decent apartments, run down houses to solid middle class houses? Democrats want to raise taxes, its a fact of life.

  • NNW (unverified)

    I don't think it's Democrats coming out of the box on this one - I think it's playing catch up to where most of the country is on this. 35 states have Real Estate Transfer Tax. It only makes since, but politicians have been talking for years about when the right time to move on this was...

    I think sooner, or later you just have to push the issue out there. Even if it gets shot down, at least the debate gets started with voters. Right now, it's just waiting, and waiting, and waiting for the right time. The time is now, or the near future, or the developers are going to run away with all the money...

  • Charles Turner (unverified)

    I'm not against new taxes as a whole if they can be shown to be beneficial in the long run but I am not sure that a real estate tax is going to work or is the best use of tax money. Disclaimer: I am a Realtor! I am not opposed, but I am not convinced.

    I've put my own two cents in on our blog,

  • Ron Ledbury (unverified)

    Pass an anti-deficiency judgment law.

    Today, buyers are paying a price that is far higher than that which is justified based on classic measures of investment value, based on what can be justified based on rent. This is a disequilibrium, meaning that the natural tendency is for the market to move toward a rational price. There is already a mix of market disturbance that are intended to create disequilibrium, and the mere illusion that higher prices represent some higher intrinsic value.

    Picture that incomes remain flat, or even down, then put interest rates at ten percent and use a payoff period of 10 years and a down payment of say 20 percent . . . then recalculate the price. The difference represents the disequilibrium.

    If a buyer, with easy term lending, derived from Federal Reserve funny money, has to go into even bigger debt than a buyer might have otherwise is this better for families? Better for affordable family housing?

    Remove the capital gains tax breaks that some residential home sellers obtain on a sale. It really is no more than a debt from a buyer to a seller, with a banker sitting between them.

    Make homes more affordable by excluding the transactions costs from being included in the value of the property for tax and lending purposes. There is nothing more depressing than watching someone obtain a low-down loan with favorable terms only to picture them trying to resell it immediately thereafter for the same price but to have to effectively cough up the transaction fees out of pocket, which they are very unlikely to have. They can only dream of some crazy appreciation and hope for an even stupider buyer to come along. Long term holders might obtain some benefit, from a micro-economic perspective, but the typical owner stays only seven years in one house. The hoped-for gains are largely consumed in the re-transaction fees already.

    I don't believe that Greenspan-style inducement of asset inflation is compatible with equity. If wage inflation had a secondary effect of driving up home prices then that would be different than the notion of stimulating spending via extraction of home equity via refinancing and such. The system is sick. Real estate transfer fees only bite into the money of the folks that themselves are dependent on transfer fees: Real Estate Licensees, Mortgage Brokers, Home Inspectors, Title Insurance Companies and the like. The only way for a home owner to be treated neutrally with a transaction fee is if the speculative frenzy escalates, which would just compound the disequilibrium noted above even further.

    Even if we cannot fix the federal level stuff related to financing, we could spare the residential buyer some of the risk when the bubble bursts by passing an anti-deficiency judgment law. Let the lender assume the risk of reckless lending that is far higher than an equilibrium price for homes. All the debt above an intrinsic value of a home is just personal debt anyway, as would be fully illustrated if the prices drop big time.

    With the capital gains treatment of homes the way it is it would not be much of a revenue drain to abandon the notion of affirmatively pushing prices through the roof, and we might even see the price of homes become more affordable.

    Given that transfer fees only work if speculative frenzy gets worse shall I reword this, with a X-PACer in mind, to ask whether you feel as if you owe a duty to generate a capital gain for someone else by agreeing to assume a personal debt above the rational equilibrium price for a home?

    --The Not-So-Wild Economist

  • Garlynn (unverified)

    I'm also not convinced yet, but I'm going to write my way through my thoughts on this:

    What if I want to buy a house in a different neighborhood -- how much is this going to raise the price of entry into that neighborhood? 1% doesn't seem like much for the $180,000 house -- that's $1,800 total. But for the $400,000 house, that's $4,000. That could be equal to the closing costs on the house, if you're savvy and can keep the closing costs low.

    On the other hand... 1% of the cost of a house for people who can afford to buy a house for themselves, which by definition at these prices are people who are at least solidly middle-class, if not better off than that... well, that's a paltry sum to pay to ensure that people who are not so well off may also have a chance at a place to live.

    I would much rather support this proposition than see more homeless on the streets, or more class inequality!

    Perhaps 1%, in the name of a greater Oregon with more housing opportunities for all, is not so much to ask?

  • gillette (unverified)

    Here is where my heart gets confused and I realizing that I am getting older and more confused. I suppose this may spawn more creative thinking on my part. Let's see.

    I live and own a small business in an up and coming neighborhood. The affordable housing where I live tends to be abused. Most of the property crime centers in these little clusters of apartments. Regardless of how hard we as a neighborhood attempt to improve where we live, we have large and medium sized apartment blocks that exist in continuous disrepair.

    Now, as one who would be considered a liberal, I am beginning to lack sympathy for the need for affordable housing. It seems like these projects get dropped in the middle of a neighborhood, and are populated by a transient population that has no regard for the future or livability of their section of town.

    As we propose new taxes, whatever they may be, I see the same developers building the same low rent apartment blocks. They make their money and leave. The renters usually stay until they are evicted, and leave. Those of us who are left are stuck with cleaning up the trash.

    This is a debate that is a constant among my customers, but I never hear it on the news, blogs or anywhere else.

    What do we need to encourage tenants to take ownership in these dwellings?

    Some proposals:

    • Those with outstanding warrants or felony convictions should be excluded?

    • Not open these apartments to renters, but arrange special terms so that they should be purchased?

    I am at a loss. As a human being, everyone has a need for and a right to a home. When I moved to Oregon in 1994, I was homeless. Can we intelligently discuss this?

  • (Show?)

    Apples and oranges, jfe. However you create housing you still have to be able to finance it.

  • NNW (unverified)

    Are developers currently responsible for putting X amount of dollars per square foot they build into affordable housing funds?

open discussion

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