Maine weighs raising taxes to pay for affordable housing

(The Center Square) – Maine lawmakers are weighing a plan that would increase taxes on high-end real estate transactions to help pay for affordable housing projects.

The proposal, filed by Rep. Lynne Williams, D-Bar Harbor, would scrap Maine’s current flat rate for real estate transfer taxes and replace it with a “graduated” system that would lower the rate for some homeowners and increase the rates for higher valued homes. The additional funds would be earmarked for the state’s affordable housing programs.

Under current law, home sellers pay a flat rate of $2.20 per $500 worth the value of the property transferred.

The proposal would create a graduated system with two rates: one for “primary residence” properties valued at $150,000 or less with a reduced tax of $1 per $500 for that first $150,000, and another level for all properties over $150,000, which would pay with an increased tax of $2.50 per $500 of valuation.

Cate Blackford, legislative director for the Maine Peoples’ Alliance, said the state has a pressing shortage of affordable housing that’s been compounded by the pandemic.

“The real estate transfer tax is a modest tax, comparable to and less than similar taxes by our neighboring states and has been shown not to affect the purchase of a home,” she wrote in testimony submitted to the Legislature’s Taxation Committee.

“By tailoring that tax Maine will be able to raise critically needed additional revenue only on the sale of our more expensive real estate and use the proceeds to help ensure all Mainers have a safe, decent place to call home.”

Frank D’Alessandro, policy director for Maine Equal Justice, said the state’s red-hot real estate market isn’t benefiting Mainers who are struggling to stay in their homes. He said taxing higher-end, luxury homes to pay for building more affordable housing is a smart move.

“We must confront that gains for some result in losses for others and take steps to end the rental housing crisis,” he wrote in testimony. “Keeping Mainers in their homes is critical to support their economic security and personal wellbeing.”

But the changes are strongly opposed by the state’s real estate industry, which calls the tax overhaul a “recipe for disaster.”

“Maine’s overall economy is fragile,” Aaron Bolster, a real estate broker and representative of the Maine Association of Realtors, wrote in testimony. “This is not the time to disrupt the real estate industry with tax adjustments.”

Realtors argue that the “fundamental” problem with the lack of affordable housing funds is the Legislature routinely sweeping the money into the general fund for other purposes.

“The most effective, long-term fix to Maine’s current real estate market is to increase the supply of properties in the marketplace,” Bolster wrote. “We can’t tax our way to a solution caused by market supply and demand.”

In testimony submitted to the committee, a Mills administration financial officer noted that “the idea of a progressive RETT (real estate transfer tax) is not without merit.”

“However, more time and study should be done to determine a rate schedule that will provide a sustainable revenue stream and work for all regions of the state,” Michael Allen, associate commissioner for tax policy at Maine’s Department of Administrative and Financial Services.

Allen noted the changes would “likely create additional work and administrative costs for the county registries who calculate and collect the tax.”

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