Despite decreased real estate activity and social distancing restrictions to prevent the spread of COVID-19, the state collected millions more in real estate excise tax (REET) revenue during February and March than it did during the same months last year, following a recent restructure of the tax.
According to the state Department of Revenue (DOR), real estate sales in February generated $67.7 million in REET revenue – a $5 million increase from February 2019. Last month, REET revenue was $95.7 million, which is $14.8 million more than the $80.9 million collected in March 2019.
Voters in all 29 counties rejected the REET restructure by nearly 65 percent in a November advisory vote, and stakeholders cautioned the move could discourage business investment in Washington, reduce property sales and drive up rental rates – notably for senior housing, particularly at a time when available affordable housing is such a focus.
Although real estate transactions are currently allowed to operate as an “essential activity” under Governor Jay Inslee’s “stay at home” order, industry members are restricted in how they can interact with clients and physically view properties for sale. Among other guidelines, no more than two people are allowed on site and must remain six feet apart.
The Northwest Multiple Listings Service reports that statewide residential real estate activity in March was down from March 2019 for single family homes and condos. That includes total listings (9,029 to 8,836), pending sales (8,874 to 7,779) and closed sales (5,818 to 5,720). Only the media residential price increased ($425,000 to $470,000), and only in Grays Harbor, Kittitas, Okanogan and Clallam counties was there an increase in pending and closed sales. Two counties, San Juan and Ferry, experienced drops in the median price.
The commercial real estate side of the industry appears to be stable at this point in time. NAIOP Washington State President Tina Pappas wrote in an email statement: “it is encouraging to see that sales are continuing and those who can work and have the capital and flexibility to act now are pursuing real estate here.”
However, Pappas says that despite the increased REET revenue for the past two months, that may not continue into the future. “We’re concerned that Washington State having one of the highest real estate excise taxes in the nation will significantly dampen investment in the state, and that REET revenue to offset both anticipated and unanticipated state needs will be lower than predicted.”
Travis Hale is a real estate developer with Panattoni Development Company and serves as its Seattle Partner. He told Lens that “if anything, there is still interest” in buying up commercial properties due to their relative value stability. “The stock market has shown that commercial assets should be a foundation for investments.” Hale also said the REET revenue collections for the past two months “is not a surprise to me. With increased property values and the added tax burden, the REET tax is benefiting from these transactions that profit at a higher percentage from each dollar spent.”
However, he points out that it was not the expectation that the transactions themselves would actually decrease as a result of the new REET tax calculation, but rather that the added tax burden would be shouldered by tenants and land sellers. “Tenants will pay more and land sellers will get less.”
And in recent testimony on the restructure, D.C.-based Up For Growth Executive Director Mike Kingsella told lawmakers: “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.”
- 1 percent for property sold at or under $500,000;
- 28 percent for properties sold between $500,000 and $1.5 million, as well as certain types of properties such as timberland, regardless of sales price;
- 75 percent for properties between $1.5 million and $3 million; and
- 3 percent on properties worth more than $3 million.
After a record-breaking December real estate sales generating double the REET revenue from the previous year, revenue dropped in January by $12 million from the same month in 2019, or $86.8 million to $74.9 million.