The Building Industry says more taxes on homes will help the market. Really?

By
Real Estate Agent with 1st Action Real Estate

'It has come to our attention that the California Building Industry Association (CBIA) has issued a Call to Action urging its members to tell the Federal Housing Finance Agency (FHFA) to reject a proposed rule that would prohibit private transfer fees.  The California Association of Realtors strongly supports the prohibition and urges you to ignore the Call to Action from the CBIA if you or any of your members receive it.  C.A.R. is currently drafting a letter outlining its position on the issue for the FHFA.'

You may recall a couple years back when CAR tried to get our legislature to pass a bill prohibiting private transfer fees. We were aligned against an odd coalition involving our some-time allies the Building Industry Association who were allied with a variety of environmental groups like the Sierra Club and others. Our bill was defeated but we did manage to get a corollary bill passed that at least required properties with private transfer taxes attached to them to at least disclose them to prospective buyers. Prior to that it was just one of those hidden items on page 57 of your title report that most people didn't find out about until they went to sell their house. 

SURPRISE!!! Here's a bill for another $2,749 that you, Mr. Seller, or you, Mr. Buyer, or you Ms. Agent, get to pay.. 

Now you might be asking yourself - 'Self, why would the building industry be in favor of an additional transfer tax on a home - especially a private transfer tax?' Well according to the BIA, 'private transfer taxes are used to finance a variety of environmental mitigation, community amenities and affordable housing requirements'. According to their website - if  the current FHFA proposal is enacted the following results may occur (along with my comments):

  • Property values could suffer (already have. Will suffer more in areas with additional taxes attached to the property)
  • Home sales transactions will become cumbersome (really? Having another tax on the property will make the transaction easier?)
  • Lending will be harder to obtain (and having another tax on the property will make it easier? Come on!)
  • Taxes and home owners association dues will increase (too late. You'll just be one more tax)
  • Environmental conservation efforts will be stifled (no, environmental extremist agendas will be stifled)
  • The real estate market will suffer further (yep, another tax on housing will really help us climb out of this hole)
  • An individual's ability to choose where they want to live will be inhibited (well yeah, they might choose not to live in an area with a transfer tax)
  • Community programming and quality of life will be compromised (yeah, a tax that has no direct benefit to the community will really compromise it)

Sounds pretty dire, doesn't it? But don't be fooled. There are areas of the country where private transfer taxes are needed and I've heard from fellow Realtors in some of those areas. But those areas are excluded from this legislation. Why? Because there's a nexus between the funds being collected from the fees and where they are spent - which is right on the same project. For example, Condo developments that rely on these fees for maintenance and amenities upkeep are exempt as are a variety of other direct benefit uses

But for California, and indeed much of the country, you need read no further than the first sentence in the BIA claim - 'finance a variety of environmental mitigation.' Translation ; it's a way for developers to knuckle under to environmentalists demands without incurring any cost themselves by passing it along to future home purchasers. 

Here's the typical California scenario: A developer has an option on a tract of land where they would like to build new homes. An eco-mill (environmentalist group set up to find out about this kind of stuff, see - ambulance chasing lawyer) finds about about this developers plan and approaches the builder.

Eco-mill: "We don't want anything built there because there are maybe endangered species or trees or we just want to preserve the wildlife there. If you move forward with your plans we will sue you from here to kingdom come and even though you might eventually prevail in court, you will spend a ton of money and ultimately it will drive your cost to build these homes up past the point where they are economically feasible."  

Developer: "Jeez, what can we do. There's a need for houses in this area and we'll be building a good affordable product that will be really good for young families?"

Eco-mill: "Well, maybe we can reach an accommodation - and it won't cost you a dime."

Developer: "That sounds delicious - what do we have to do?"

Eco-mill: "Just attach this private transfer tax to your homes. Every time that home gets resold for the next 30 or 50 years, that tax will be collected and we'll rake in millions of dollars over the life of the property."

Developer "And what will you do with the money?"

Eco-mill: "Oh don't worry abut that."

Developer: "But will you spend it in the area, maybe help build a new road or a park for the development, contribute to a school or help build a new fire station or something to benefit the residents who will be paying the tax?"

Eco-mill: "Are you friggin crazy? We are totally unregulated. We might spend part of it on new Prius's for our members, and we might raise our own salaries and we'll probably spend part of it to research other poor schmucks like you who are thinking about building somewhere else and we'll no doubt spend part of it suing developers who don't just fold up like a cheap card table when we threaten them."

Developer: "Hmmm, well I don't like that one bit but as long as you promise to leave us alone I guess we'll just go along and get along."

Eco-mill: "Thatta boy. Next."

Think I'm making that up? That exact scenario plays out numerous times throughout our state - less now that developers are building fewer homes, but it was so prevalent during the boom days that whole eco-mills were set up around the product. There was even a Texas company on-line offering the opportunity to help you set up an individual private transfer tax on your own home so that after you sold it, any future sellers would have to send you a check. 

The scenario also happened right here in Temecula with a group that was threatening to stop a well known developer from building a big box store in South Temecula. In that case, because it was a  single store rather than a development with future resale, the settlement was for an upfront fee and the organization went away. 

And that's how it works.

So if you get an email from colleagues at the Building Industry asking to help defeat this FHFA proposal for a private transfer tax, pass on it. NAR has been fighting hard to get this provision included at a national level and at least 11 states have passed a similar measure prohibiting these private transfer taxes. States like California that have no political will (balls) to step up and take a stand against these eco-terrorists, will only benefit from the passage of this proposal. 

Well, that's just my opinion. I could be wrong.

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Re-Blogged 1 time:

Re-Blogged By Re-Blogged At
  1. Kevin Robinson 04/06/2011 10:33 AM
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Rainmaker
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Nicholas Goglucci
South Florida Real Estate & Development, Inc. - Pompano Beach, FL
The Listing Whisperer

oh here we go again - right back at those liberals - Obama raised taxes and still there are no jobs - failure!

Apr 05, 2011 08:44 PM #1
Rainmaker
367,837
Kevin Robinson
Twin Falls, ID
High End Vacation Homes

Gene- Builder here. I somehow must have missed that memo. I am not in favor of more taxes. Period.

I reblogged and suggested this post.

Apr 06, 2011 09:04 AM #2
Rainmaker
225,023
Gene Wunderlich
1st Action Real Estate - Murrieta, CA
Realtor & Legislative Liaison

I guess the call for action has gone out from the California BIA but don't know about the rest of the country. I know there are some areas where this is critical and those areas have been exempted from this but you are right, more taxes on housing never solves anything, let along help the market right now.

Apr 06, 2011 02:34 PM #3
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Rainmaker
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Gene Wunderlich

Realtor & Legislative Liaison
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