New Study Finds Real Estate Transfer Taxes Chill Commercial Markets, Suppress Housing Supply

Increasing real estate transfer taxes is often proposed to fund more affordable housing, but recent economic analysis by the Sage Policy Group shows these levies can have serious unintended consequences, while failing to raise projected revenues.

According to the findings, transfer taxes impose a financial penalty on property transactions, discouraging both residential and commercial sales. Transfer taxes are especially disruptive to the commercial real estate market, where sale prices are higher, investment models are more sensitive to cost, and the reuse of space is essential to urban recovery. When transaction costs rise, fewer distressed assets are acquired, repositioned, or converted to other uses.

Findings:

• Commercial Real Estate Chilled: Cities with recent transfer tax hikes saw sharper-than average collapses in office market activity. City of Los Angeles office sales plummeted 54% after its 2023 increase, while Pittsburgh transactions fell 84% after its 2020 hike.
• Fewer Apartments, Higher Rents: After the City of Los Angeles enacted a higher-tiered transfer tax in 2022, multifamily housing construction dropped 18%, nearly 2,000 fewer units annually, including about 170 affordable units per year.
• Revenue Promises Broken: In the City of Los Angeles, Measure ULA was projected to raise $900 million annually. Actual collections came in 63% short of projections. San Francisco saw similar volatility, with transfer tax revenues swinging wildly from year to year.
• Construction Jobs Lost: A $245 million reduction in construction spending tied to higher transfer taxes eliminates nearly 2,700 jobs and over $600 million in annual economic activity nationwide.

Download a copy of the Sage Policy Group study here.

For more information contact Phillips Hinch at phinch@icsc.com.