County Council is scheduled to vote on April 7, 2020 on implementing a $15 fee on all new or transferred mortgage or deed recording transactions to fund the demolition of blighted properties.
While demolition of blighted properties is a good idea that is worth public funding, a deed transfer fee is a terrible way to pay for it.
Pittsburgh already has one of the highest deed transfer taxes in the country, with a rate of 5%. Adding an additional fee would exacerbate the problem of high real estate transfer costs. As the Economist writes, taxing real estate transfers is one of the most inefficient and unfair ways to raise revenue.
Such taxes are effectively a tax on moving and as such they encourage people to stay put. A study of a transfer tax change in Toronto found that a 1.1% transfer tax rate caused a 15% decrease in the number of sales of property. The study estimated that there was a $\$$1 general welfare loss for each $\$$8 in tax revenue generated as a result of the tax’s effect on behaviour.
Discouraging property sales has several harmful effects on society:
- It discourages people from seeking new job opportunities that require relocation. This saps a region’s vitality as people cannot transition as easily into the opportunities where they would be most productive.
- It discourages older people from downsizing. This reduces the amount of housing for families that have a greater need for the space. It also keeps older people in housing that can be less safe as people age. Larger properties are difficult for some older people to maintain. While people should have a right to stay in their existing homes, they shouldn’t be discouraged from moving if they want to.
- It discourages developers from rehabilitating properties. Developers have to pay this fee twice as they have to buy and sell the property before it can be used by the general public. Developers pass their costs on to the consumer so this is something we would have to pay collectively as a society as it impacts the affordability of housing.
A transaction fee is even worse than a transfer tax because it is regressive. A low income person buying a $\$$50 thousand home has to pay the same fee as someone buying a $\$$1 million mansion.
There are many other taxes that would raise the revenue without the negative economic distortions. These include:
- Increasing the alcoholic beverage tax.
- A county gasoline tax.
- A land value tax (ideally) or an increase in the property tax.
Only a small increase in any of these taxes would be needed to raise revenue equivalent to the proposed deed transfer fee. While funding blight removal with one of these taxes would be ideal, it would be better not to fund it at all than to impose a deed transfer fee.
Allegheny county council should vote no on the deed transfer fee.
