Affordable housing advocates are proposing that Baltimore increase transfer and recordation taxes to invest $20 million annually in the city’s Affordable Housing Trust Fund to address what they call a crisis.
The Baltimore City Council bill proposes financing the fund by adding 1 percent to the city’s transfer and recordation taxes on the sale of non-owner occupied properties. Builders and developers are concerned that raising those city taxes by 40 percent will slow transactions on commercial assets, such as market-rate apartment developments, office buildings and industrial properties.
“The funding is needed because we have a crisis of fair and equitable development in this city,” said Matt Hill, an attorney at the Public Justice Center.
Councilman John Bullock is the bill’s lead sponsor, and as many as nine of the city’s 15 council members are expected to sign on as co-sponsors. Bullock said this tax increase is only one of several tools the city should be looking at to boost affordable housing in Baltimore.
“This is not in any way intended to be anti-development at all,” Bullock said.
In 2016, city voters overwhelmingly cast ballots in favor of amending the city charter to create an Affordable Housing Trust Fund. But the repository has no designated funding mechanism.
Previous proposals, which include hiking recordation and transfer taxes on all city properties, and a campaign to convince Mayor Catherine Pugh to issue $20 million in general obligation bonds annually to build affordable housing, have stalled.
Affordable housing advocates have argued for years that Baltimore faces a shortage of affordable units despite swaths of vacant homes, regional lows in single-family home prices and booming multifamily construction.
Those advocates say the city’s vacant housing is part of the problem. Vacant properties can’t be lived in, which limits available supply. Often, when derelict homes are overhauled, the price to rent or buy is too high for low-income residents.
Multifamily construction in the city has produced primarily luxury apartments that are too expensive for low-income families. While a handful of affordable housing developments have started construction they don’t provide the number of units proponents say are needed.
Decreasing funds from the federal government and concerns about the demand for Low Income Housing Tax Credits following federal tax reform are also expected to lower production of units for low-income residents.
Money that goes into the Affordable Housing Trust Fund would be used for a variety of efforts to help families making less than 50 percent of the area median income, including restoring vacant homes, creating community land trusts and providing rental vouchers. The trust would be managed by a community-based board appointed by the mayor and the Department of Housing and Community Development.
The recordation tax, according to the proposal’s supporters, would put the city in line with similar municipalities in the region. Pittsburgh recently approved raising its transfer and recordation taxes to a total 5 percent by 2020. That increase is tabbed to pay for affordable housing.
Philadelphia charges recordation and transfer taxes totaling 4.1 percent, Wilmington has a 4 percent rate and Washington collects 2.9 percent on sales over $400,000.
Baltimore’s current rate of 3 percent, which includes state fees, recordation and transfer taxes, is already the highest in Maryland. The next highest combined rate in the Baltimore metro area is 2.5 percent in Baltimore County. Anne Arundel County charges 2.2 percent and Howard County’s combined taxes amount to 2 percent.
Joshua Greenfield, vice president of government affairs for the Maryland Building Industry Association, said he’s concerned legislation is being introduced piecemeal. A city task force examining Baltimore’s affordable housing issues hasn’t even started meeting yet, he said, and the bill is being introduced without benefit of fiscal or market studies.
“But to raise transfer and recordation taxes by 40 percent, it will significantly raise the cost of transactions,” Greenfield said.
Tom Ballentine, vice president for policy and government relations for commercial real estate advocacy group NAIOP Maryland, urged caution on adding taxes in a city already facing financial headwinds. While increasing taxes by 1 percent may not sound like much, he said, that figure is misleading because commercial property owners already carrying more than their fair share of the burden in paying for services.
“I think everyone should take a close look at what the proposal is,” Ballentine said.
Destiny Watford, founder of the Greater Baybrook Community Land Trust and Curtis Bay resident, said investing in the Affordable Housing Trust Fund empowers communities to control revitalization efforts. No one knows the needs of communities better than the people who live there, she said, and too often they’re viewed as part of the problem rather than the solution.
“This is a follow-up on (creating the trust fund) and a lack of action by the city,” Watford said.