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Councilors would levy new taxes on property flippers and high-end transactions to boost affordable housing
By adamg on Mon, 01/14/2019 - 2:54pm
Councilors Lydia Edwards (East Boston, Charlestown, North End) and Kim Janey (Roxbury) say the city's current affordable-housing efforts are not enough to stop the Manhattanization of Boston.
In a proposal filed Monday, the two propose a tax of up to 25% on transactions involving property bought and sold by the same entity within 24 months - a practice known as flipping - and a new tax of 6% on transactions involving pricey properties in the city.
In their proposal, the two say Boston's main affordable-housing program - requiring housing developers to set aside 13% of their units as "affordable" and office developers to pay into a housing fund - is aimed at people making between roughly $50,000 and $100,000 a year.
That means that poor people and people living in apartments are often squeezed out of the city because they do not make that much. The councilors say the flipping provision could reduce escalating real-estate speculation in poorer neighborhoods and that they would use the new money from the taxes, which they told the Globe could raise between $175 million and $350 million a year - to help residents at the lower end of the housing market stay in Boston.
The council will consider their proposal for a formal hearing on the proposal at its Wednesday meeting, which starts at noon in the council's fifth-floor chambers in City Hall. The measure would require the approval of the council, the mayor and, ultimately the state legislature and governor.
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Comments
Ironically
We need Manhattanization of the Fenway, South End, West End, Central Square, Brookline Village, Coolidge Corner, etc... along with regional housing development in places like Newton, Revere, Medford, Arlington, etc... to keep housing affordable in the metro area. But somehow that's never seen as feasible so let's all pretend it's better to raise taxes and everyone lives in a 3 story or shorter building.
We absolutely
need taller, denser housing in all those places. There are a lot of NIMBYs out there - are rich, white, trust-fund baby assholes who don't give a flying rat's ass about affordable housing for other people, they just don't want any new development in their neighborhoods. But they can't come out and admit that they're selfish pricks, so they pretend to give a shit about equity.
Some higher taxes on said NIMBYs might also be a good idea. At least one of these taxes would apply to them.
Well this is racist. I'm sure
Well this is racist. I'm sure an intelligent person such as yourself could have found a less offensive way to get your point across. I know Adam won't ever let my comment see the light of day but it's heartwarming to see that he is open to allowing other comments, no matter what the content in the interest of discussion and freedom of speech.
Yes, I probably could have.
There are trust-fund baby NIMBYs who aren't white, I suppose.
Also, it looks like your comment saw the light of day.
No
For The Last Time, White People: Reverse Racism Isn't A Thing:
https://www.theodysseyonline.com/reverse-racism-isnt-thing
Well
of The odyssey online says so, it 100% must not be! Thanks for setting the record straight.
Not all people who care about
Not all people who care about their neighborhoods are from the same group, and just because housing prices go up on a particular street doesn't mean more density should be always built there. People who've invested in a neighborhood for a long time do have a say.
We do?
I mean, since when was Manhattan considered affordable?
Seaport district is much more
Seaport district is much more expensive than Manhattan
False
Not true. When was the last time you tried renting a newer apartment in Manhattan?
Density
Manhattan = 66,940 / sq. mile.
Look at this chart- https://www.arcgis.com/home/item.html?id=ca5a9948bc1c4ea8a7495e9038d679ac
Mostly 'core' Boston neighborhoods have a 'very high density' which when converted to pop/sq. mile is 18421 per sq mil. It's not even close.
We shouldn't aspire to turn Boston into Manhattan or Hong Kong but we should welcome dense development in certain core areas (as noted above) so we have a few areas where there are 30-60k of people in a square mile. That will do much to slow the pressures on the roads, transportation systems, housing costs across the area. But of course, only in Boston are people talking about this. Places like Newton are more preoccupied with how to develop WIddett Circle or that we should host the Olympics for their amusement.
wrong word
The councilors seem to be misusing the perjorative "Manhattanization". It's supposed to be a complaint about building too many 40+ story high-rises, not a complaint against high rents.
They didn't use the word
I did. And I was referring to the fact that Manhattan is now home, more or less, to the very rich and the very poor. Which is what Boston seems in danger of becoming.
Yes, Manhattan has way more tall buildings than Boston does, but again, I was referring to economic strata.
Some of those are stupid places to overdevelop
It would be a terrible idea to Manhattanize in Boston's flood plains without serious attention to design and infrastructure for higher flood waters. I joke to friends with garden duplexes in the South End how their upstairs neighbors will have to buy them out to have concrete poured into those units , were they all to live a few more decades....
Some of those locations
Some of those locations should not be overdeveloped. Just because property values go up doesn't mean density should always be added somewhere.
I'd certainly
be open to these proposals, and hope the resulting revenue is directed back into affordable housing.
But w/r/t "Manhattanization" I was under the impression that word was more tied with fears of tall buildings with their big, bad shadows, and shade, and wind tunnels, and scary upper floors way up there in the sky that are so many feet up, and it's the end of the world because buildings shouldn't be taller than 3 or 4 stories.
Shitty drafting
Shitty drafting
One of these is not like the others. (i), (ii), (iii), and (v) all refer to types of transfers. (iv) on the other hand refers to a type of taxpayer. Is the intent to exempt purchases by taxpayers with a residential exemption? Sales by taxpayers with a residential exemption? Both? Neither? This is the kind of sloppy crap that forces people to pay big legal fees for no good reason.
Why not just base it on residential exemption?
Put a heavy tax on selling any home you don't live in.
coming soon
a whole lot of new buildings sold 25 months after initial purchase.
Fuzzy Math?
The $50 million example presented in the Globe cannot be correct, can it? They're proposing a tax on the entire sale price of the property's value? That's an enormous tax. A fairer tax might be on the profit from purchase, much as how the capital gains tax is calculated. So it'd be 6 percent of the $231M profit made on that 53 State Street example (which just so happens to be The Globe's HQ; kinda lazy reporting to use that as an example). That would've netted about $14M for the city.
Beware of unintended consequences
I can see the 24-month flipping provision exacerbating the housing shortage: A prospective owner would purchase a property, renovate, and leave it empty just long enough to go over 24 months -- it's easily worth waiting to avoid a punitive tax of 25% of the property's value.
Flipping happens because many buyers are unwilling to deal with the inconvenience of renovating a fixer-upper, so they just pay the premium for someone else to find that property and do the grunt work.
Longer-term, I see the $2-million-and-up luxury tax hitting a bunch of multi-family properties out in the neighborhoods as well as properties being used by non-residents to park assets.
Fuk Flippers
No, flipping happens because a bunch of assholes think that anyone can renovate a place for big bux so they buy up all the cheap housing stock. Flippers deny people the opportunity to buy cheap housing and fix it up themselves, so now everyone have to pay more for amateur installations of generic crap like stainless steel appliances, granite counters, and subway tile that they may not have wanted in the first place.
I can't wait for the market crash.
Flippers exist because often
Flippers exist because often times the home they buy are cash only and in a condition that no bank would give a mortgage for. In addition many are foreclosures that the banks do not want any liability on (aka as is cash only). Anything that needs work but is liveable and will pass for a mortgage is almost always sold the traditional manner.
As for people not wanting things I don’t get the logic. As a flippers main objective is to make the home as marketable as possible it’s a fair assumption that they are installing things that people do want in their experiences.
Right, we need more lending options
The city should be working on ways to help people use financing to buy foreclosures/as-is sales. It's not a big lending risk in this city as it is in many parts of the country; vacant lots go for a sizeable chunk of cash.
Can I go live in your simple little world?
Flipping is a complex phenomenon. Not all flippers are evil - some are family businesses that keep a lot of local people employed.
My former landlord bought a run-down two family at the age of 23 and renovated the lower apartment by trading labor with his friends in the trades who were doing the same. When the people upstairs moved out, he renovated the upper level for his family to occupy. Was he a flipper for using hard-earned money to buy out an estate and living with his parents and working any number of extra hours to make it all work?
The folks who bought my parents' home were locals who bought houses to keep their family tradespeople busy during downturns and slow periods of the year. They also loved older houses in the neighborhood they live in and didn't want them torn down. They converted the place into two units and did a beautiful job of it.
There was an idiot in our neighborhood who never shoveled - until she was threatened with a lawsuit because a high school kid got hit walking in the street around her property. She also managed to land in foreclosure because she was too mental to sell her house for 2.5x what she bought it for when she couldn't make the payments. A "flipper" came in and got her out of the mess without a foreclosure or a bankruptcy - made a deal with her bank, cut her a fat chunk of cash to move, and then renovated and expanded the house.
As a non-home owner, I'm sure you are probably not aware that you can't discriminate against buyers, either. Yet another thing ... some of these houses being "flipped" were sold to settle estates under a court order specifying a cash sale. Go talk to judges if you want to stop that.
Can I get an eyeroll with that subway tile?
Gosh, these flippers are truly the salt of the earth. Maybe I should set up a GoFundMe to help them with their charitable efforts. Give me a break. Your former landlord example doesn't even count as a flipper.
Flippers are locusts eating cheap housing stock. Trying to dress it up with mawkish hooey doesn't change that.
Do I understand your position correctly?
If I buy a run-down house, and then hire Tom the contractor to renovate it, and then I live in it, that's normal real estate business.
If, on the other hand, Tom the contractor buys that run-down house and renovates it and then sells the renovated house to me, and then I live in it, then somehow Tom is an evil locust distorting the housing market?
I think Flippers in MA are different than what we see on TV.
A Flipper will pay 900K cash for a 1,200 sq ft. ranch in Wellesley and build a 4 bedroom mansion that might sell for 1.8 million. Not many families are going to pay 900K in Wellesley and live in a house that needs repairs in Wellesley for 900K.
Even Chelsea you can get a house that needs work for 500K. But then you are in a price range for condos in a place like Brookline for the same price. But the flipper can buy the house and make a little money off it.
The flipper shows we see on TV are areas where rundown houses exist in good neighborhoods and just by fixing it up you can make some money (And the prices are normal compared to the average salary unlike here in Boston)
This isn't TV
This is who most flippers are: tradespeople and their families.
Kleptocrats
First Trump and the Republicans now this. Yes, councilors - I lump you all into the same boat.
Give it a rest - the city has increased the budget at almost twice the rate of inflation for years. If you can't make ends meet at City Hall it's on you - not the taxpayer.
Twice the rate of inflation
Nice spin you got there.
Twice the rate of national food price increases ... not twice the rate of HOUSING price increases IN BOSTON.
"A rising tide lifts all boats."
Why would flipping houses be taxed, especially if the flip involves home improvements after the purchase and before the (flip) sale? I have seen many derelict houses bought by a developer or handyman on the cheap, nice improvements made and land cleaned up. Why should they be punished? They are already paying taxes on any profits. Is the goal to keep rundown properties rundown and therefore affordable?
I can see some sort of tax if the flipper knocks down a single or two family and puts up twenty units, but the traditional flip, at least the definition that I know, is to buy a a house needing improvements, make them quickly, then sell for a profit. All I can think of is that house in a Boston neighborhood that's been abandoned for years with the landlord filing frivolous suits. It might be a knockdown by now but many neglected homes just need some TLC. There should be no two year requirement to hold them or a tax to punish those taking the risk. What is Marty doing with the penalty slush fund for the many who build residential high rises and pay the fine rather than set aside affordable units?
Uhm ......
When houses are renovated and flipped they are no longer affordable.
Exactly.
The idea that flippers only buy uninhabitable housing is rather screwed up.
It's what the house is worth...
Flippers buy a house for what it's worth, just as a dressmaker buys fabric for what it's worth.
Then the flipper works on the house and creates value, just as the dressmaker works on the fabric and creates value.
Then the flipper sells the house for what it's worth, and the dressmaker sells the dress for what it's worth.
Why should there be a punitive tax on the flipper's economic activity and not on the dressmaker's?
Your model works if you think there is only one kind of
house that people who want to live in that house should be able to buy -- a house that has had "value" added to it in the form of generic upgrades.
"Value" for someone else is not "value" for me.
Put plain and simple: I would not be in somewhat shabby but perfectly inhabitable house that I now own if it had been gobbled up by a flipper first. Because I would not have been able to afford it and then take my time fixing it up myself. It would have been already "upgraded" out of my price range.
Now that I own it, flippers constantly target my house, usually in the guise of fake "I have a buyer interested" letters. This technique is taught by an industry dedicated to flipping.
Whether a tax is the answer to the problems to the distortion flippers create is debatable. Whether flippers distort the housing market is, in my opinion, not.
Really?
You think flippers and dressmakers are in the same business?
Most pre flip houses do not
Most pre flip houses do not qualify for traditional mortgage and are cash only so it’s really a stretch to call them affordable. They are houses almost always requiring significant work.
Sort of
They're unaffordable because 203(K) mortgages are hard for people to get and cost a lot to fix the place because they don't allow the owner to do the work themselves or have any portion of it done by unlicensed people (including the parts that don't legally require a license to perform). You also have to bring the whole thing up to mortgage standards and can't do what DIYers might do and leave a portion perfectly safe but gross and unused until they have the money to renovate the rest of it.
Flippers have the option of making a small profit by getting the house just to the point that it will qualify for a conventional loan, or a large profit by putting in things that drive up prices. Guess which one they choose?
We need to get the city to work with lenders and low- and moderate-income residents to allow people to purchase foreclosure/as-is properties and fix them up however they choose. Obviously require inspections for plumbing/electrical/structural work, but allow DIYing as is allowed with normal mortgages.
Flippers also often have a 50%+ down payment....
Low and Moderate income residents don't and therefore don't have the option to buy (and get the loans eeka describes)
What about the feelings of
What about the feelings of people who rent and don't own?
Why are you concerned about
Why are you concerned about replacing a single or two-family with dozens of apartments? That's how to create housing affordability -- build more units.
Even if the 20 units are fancier than the 2 they replace, it still helps lower prices. The alternative is someone renovates the 2 units in place.
I'm more concerned with:
1) Zoning that prohibits multifamily dwellings or subdividing big old houses in neighborhoods near T stations
2) Parking requirements that drive up the costs of new multifamily buildings. We figured this out before 1905 -- people liked living in places like this, and still like it today: https://goo.gl/maps/UjzKTrMCRUA2
3) People who buy multifamily buildings and convert them into a super-fancy single family house
Expanding transit outward
Expanding transit outward into otherwise under-served neighborhoods also creates affordability by creating a large sudden increase in supply of housing that "works" for people who cannot do a car commute. it also pushes the under-served and thus under-valued "ring" out further, into areas right now that are vastly underdeveloped exburbs, where land is cheap and people who do want a suburban/car commute can snatch up property there.
ultimately it's a combo of smart development of multifamilies around transit dense hubs AND expanding transit out to create more of those hubs
But what if...
...every one of those 20 units is priced higher than either of the 2 they replace?
25%???
A 25% tax?? Are these folks on crack?
Should twenty five per cent appear too small
Be thankful I don't take it all
'Cause I'm the taxman, yeah I'm the taxman
Ineffectual
I get the intent, but it's misguided. High prices are caused by insufficient supply to meet demand. Increasing costs, via taxes, will reduce supply, making matters worse.
As others note, the "flipping" provision is silly - why punish people for trying to make a distressed property then turning it around for a profit? What about people who buy a house, then have to move unexpectedly? And will it benefit the city if I buy a house, hold it vacant for 24 months 1 day, then sell it?
As for the $2 MM tax, we'll just see a lot of properties going for $1,999,999, plus some side deals that the City will never see. Eg, I'll buy a rug from you for another $500,001. It really ties the room together...
I'll buy a rug from you for
That's why there needs to be separate and targeted rug tax.
Every time....
Every time a rug is micturated upon in this fair city, I have to compensate the city government 25% of its value!
Property flipping days are
Property flipping days are over and long gone in East Boston,
It’s the 60 plus year Eastie residents (who patiently waited long enough) who are now selling and are trying to get top dollar for their properties, Yea, you may find a buyer who renovates a triple decker and sells each unit ( is that called flipping) I wouldn’t think so.
Real Estate sales in Eastie according to Zillow is slightly down 6% for the month of December .
And it will continue to be one of the best hidden gems 7 minutes from Downtown Boston.
The missing clause here..
An exemption for those who promise not to use space-savers on Thursday’s during winter months.
This is about as good idea as
This is about as good idea as rent control was. We all know that discouraged landlords from making improvements to their rental real estate which created more slumlords because rents increases were controlled. There will much less incentive to upgrade to attract true professionals. It will lower the tax base which will create higher taxes for the middle class.
Same result as rent control
This is about as good idea as rent control was. We all know that discouraged landlords from making improvements to their rental real estate which created more slumlords because rents increases were controlled. There will much less incentive to upgrade to attract true professionals. It will lower the tax base which will create higher taxes for the middle class.
Construction Loans
Professional house-flippers don't finance like Bob and Mary looking to buy their first home. Regular homestead buyers almost always go with traditional mortgages, often from banks and credit unions, with terms often up to 30 years. House-flippers rarely go the mortgage route, instead going for construction loans from private and hard money lenders, that cover the acquisition of the property plus the costs for the renovation - to be paid off at the time of property sale.
Whereas Bob and Mary's 30 year mortgage might have rates under 4%, a construction loan for a house buy-and-flip usually has a term of 12 months or 24 months. And the rates are around 13-16% typically. So that means; buy/evict if necessary/renovate/market/sell in under 2 years, or risk default.
So the proposed 24 month regulatory scheme aims squarely at a time period almost exclusive to the professional house-flipping/profiteering industry, rather than homestead buyers.
And many house-flippers are not going to 'sit' on the property for 2 years to wait out the taxable period. Because in all likelihood, their financing will have to be perfected within a couple of years from acquisition, and they're paying inflated private interest rates in the meantime.
Can we stop calling it Manhattanization?
until half the city doesn’t shut down when the sun goes down, liquor licenses aren’t worth more than entire businesses, and we have viable public transit after midnight?
Rent To Own
The only way you can stop bad real estate commoditization is to stop all real estate commoditization. All residential property should be owner occupied and purchasable with no money down / no interest mortgages issued by the government - having secured those properties for sale by confiscating all non-owner occupied properties. If scummy investors still want to continue their practices they can focus on industrial and commercial real estate instead.
Ja, ja!
I read what you're saying as approximately this:
"We will seize their property and redistribute it to the Volk!."