Increasing affordable housing is once again one of the Legislature’s top priorities this session. Unfortunately, also once again, some lawmakers think that raising real estate taxes is a way to do that.

As proposed, House Bill 2276 would impose a new 1% transfer tax on the sale of properties over $3.025 million. This tax would be on top of the 3% real estate excise tax already levied on these sales—one of the very highest REETs in the county.

In comparison to the proposed combined rate of 4%, Oregon’s REET is 0.1%, and California’s is 0.11%. Thirteen states, including our neighbors in Idaho, don’t impose any REET at all. Washington also allows local governments to impose an additional REET, something allowed in less than half of the states.

 In other words, it’s already expensive to sell property in Washington.

Even though the tax increase is being pitched as a “mansion tax,” the reality is that single-family residential sales are a small portion of real estate transactions at that price level. Instead, I know from my experience as a commercial real estate broker that most of these transactions involve commercial or industrial facilities—think jobs—or multifamily housing projects, which traditionally provide many of the most affordable housing options.

Increasing the tax on those transactions will have repercussions throughout the local and state economies because you can’t make something like housing more affordable by increasing its cost or diminishing the supply.

Proponents also claim the bill would give anyone selling a house valued at less than $3.025 million a tax cut. That’s not the case. Anyone selling a house under $525,000 would see no tax reduction at all. For anyone selling a house valued between $525,000 and $3.025 million, the tax reduction would only be about $400—minimal savings that will be overwhelmed by the negative impacts on the local economy.

This is one of the worst times to consider increasing the REET. Employers continue to redefine their workplace environments as more employees opt for remote or hybrid work options that reduce the need for office space. Major economic sectors, including technology companies that have long propelled our state economy, are retrenching and laying off employees. Those are some of the reasons why commercial real estate sales are down 82% in the last two years, according to the Commercial Brokers Association.

Interest rates are also up, making all real estate construction and sales more expensive. Given the market uncertainties, lenders are less likely to underwrite purchases or new projects. Without financing, builders can't move forward with projects that bring new affordable housing units online and provide much-needed family-wage construction jobs.

None of these trends are likely to reverse anytime soon.

Multifamily housing is a proven means of providing more affordable housing. Increasing the excise tax on new multifamily units would eventually be passed onto the renter, making affordable housing less accessible to those who need it most. 

Last session, legislators took a number of important steps to increase affordable housing—all without increasing the REET. They made more than $1 billion in new housing investments and took some initial steps to reforming zoning and permitting regulations that discourage construction and make housing more expensive. They should look for additional steps that would allow the private sector to build more homes and reject HB 2276.

Chris Bell is a managing broker at Spokane-based Commercial Real Estate company NAI Black and an asset manager for an office with a portfolio of commercial real estate and multifamily and affordable housing communities in Eastern Washington.