Boston’s City Council first passed an innovative tax on luxury real estate transfers nearly four years ago to raise revenue for affordable housing. But the Massachusetts state legislature needs to approve the municipal tax. And in the face of the real estate industry’s relentless opposition, lawmakers have refused to do so.

Meanwhile, an acute housing shortage and affordability crisis grips the city. Boston has even surged ahead of notoriously pricy San Francisco in median asking rent — now at an exorbitant $3,839 a month.

Renting is the only option for the vast majority of local residents who cannot afford to buy a home. Harvard University’s Joint Center for Housing Studies estimates that a family would need $196,814 in annual income to purchase a median-priced home in the metropolitan area. But the median income of a Boston household, at $81,744, is far less than half that amount.

report by the Massachusetts Taxpayers Foundation found that about 111,000 residents left the state between April 2020 and July 2022, with high housing costs among the top reasons for their departure.

The luxury real estate transfer fee would address this problem by levying a 2 percent tax on real estate transfers above $2 million, with revenue going towards new and affordable housing units. The longer the state legislature obstructs this reform, the greater the city’s public investment revenue losses.

                                Click to download our interactive map of Boston

We analyzed property sales records for 2022, finding that Boston had 7,706 Boston real estate transactions totaling more than $10 billion. The downtown area and the neighborhoods of Dorchester, South Boston, East Boston, and Jamaica Plain accounted for approximately half of these transactions.

A two percent transfer fee on transactions valued at $2 million or more would have raised $55.3 million and would have applied to just 10 percent of units. The majority of these (61 percent) were sold by institutional investors (such as companies, trusts, law firms, religious institutions, etc.).

The city could raise even more revenue by adding another tier to the real estate tax so that properties selling for more than $4 million would face a 4 percent transfer tax. Only 3 percent of units in the city meet this threshold, with institutional investors making up two-thirds of sellers. If this two-tier model had been in place in 2022, it would’ve raised an additional $38 million, bringing total revenue to $93.3 million.

Institutional investors seeking profit opportunities — as opposed to families seeking a roof to put over their heads — make up a significant share of Boston real estate deals. Our analysis of sale records reveals that these investors made 20 percent of all purchases in the city in 2022, or 1,554 units, and accounted for a whopping 41 percent of the total transaction dollars.

The huge presence of institutional investors in the residential real estate market exacerbates the housing shortage, increases prices across the board, and erects structural barriers for working- and middle-class families who hope to own homes.

We recommend that a higher transfer tax of 5 percent be applied to institutional investors’ purchases of residential properties. This would raise an impressive $208.7 million in tax revenue in its first year. This money has the potential to construct 1,281 one-bedroom housing units.

Of course the real estate industry and other anti-tax, free-market organizations will continue to fight the city’s efforts to raise additional revenue from luxury property sales. They’re already claiming that the real driver of Boston’s exodus is the existing tax burden on the rich, including the Fair Share Amendment, a tax reform won through a 2022 ballot measure that went into effect this year. This new law applies a 4 percent surtax on those earning more than $1 million a year, or 0.6 percent of all earners, to raise revenue for public transit expansion.

But research on tax increases on the rich in other states debunk the myth of the fleeing millionaires. And the large and rapidly growing high-income class in Massachusetts can afford to contribute much more to address urgent social needs. Between 2019 and 2020, the number of taxpayers reporting more than $200,000 in income rose 8.5 percent from 332,670 to 338,470.

Boston’s renters can’t afford further delay. The state legislature needs to give the city the freedom to implement and expand its real estate transfer tax — and its wealthiest residents need to pay their fair share.

For information on our methodology, click here

Omar Ocampo is a inequality researcher at the Institute for Policy Studies. Jiaqin Wu is a Next Leader for the Program on Inequality and the Common Good at the Institute for Policy Studies. 

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