The state legislature last year restructured the state real estate excise tax (REET) from a flat 1.28 percent rate to a graduated rate, with stakeholders at the time warning the move could have a variety of implications for investment and growth. Now, a bipartisan group of state lawmakers have proposed HB 2452 which would restore the original rate for multifamily housing.
At a Jan. 23 public hearing of the House Finance Committee, supporters of the measure argued that the new, higher REET is undermining efforts to improve housing affordability by discouraging further development.
“I was very concerned in finding that a lot of proposed development that was slated to come to certain areas here in the state was no longer coming here,” bill sponsor Rep. Andrew Barkis (R-2) told the committee. “It’s an important bill, I know it’s a tough one. But when you think about it in the context of the work that we’re doing to try to increase the supply of housing in the state of Washington…we see costs going up and supply going down.” Barkis said his bill will help draw developers back to the state to help with the needed housing supply.
Under SB 5998 approved last year, the existing, flat REET rate was changed to a price-based rate ranging from 1-3 percent of the sales price. At the time the bill was under consideration, critics warned the change would deter housing development, and since its passage, Barkis said he’s become aware of at least four instances in Thurston county where out-of-state investors pulled out due to the tax policy change.
Under HB 2452, multifamily housing containing four or more dwelling units would return to the 1.28 percent REET rate, thus exempted from the new graduated rate.
Among the bill’s supporters is NAIOP Washington State, the Commercial Real Estate Development Association. Lobbyist Greg Hanon told the committee that maintaining the current restructured rate would “likely reduce future collections by more than the cumulative surplus – a good reminder that tax policy does influence behavior.”
Hanon cited December’s REET revenue collections — nearly double the amount as the same time period in 2018; in anticipation of this, real estate investors had previously told Lens they planned to sell properties before the new law took effect in January.
McKenzie Darr with multifamily and senior housing developer The Wolff Company told the committee: “the recent increase to the real estate excise tax has placed a cost burden on housing that adversely impacts multifamily property values, constricts new supply and is detrimental to residents. These impacts challenge the feasibility of new development due to capital requirements imposed by construction lenders and investors (because) the impact of the excise tax is considered by investors prior to initial capital commitment. The problem is not one of diminishing returns, but of an inability to obtain project financing.”
D.C.-based Up For Growth Executive Director Mike Kingsella told lawmakers “this is a hard cost for the industry…. additional cost always find its way down to the person who seeks that housing unit, so anything we can do to ease that burden…is the right thing to be doing from a tax policy standpoint. We already have a fairly significant high level of tax and environmental regulation in the state that does place a burden on trying to obtain affordable housing as it is.”
No further action is scheduled for HB 2452.