In today's Charlotte Observer, there was an article about a new proposed land transfer tax.

The city and county leaders are proposing a 1% levy on all property sales in Mecklenburg County, to fund improvements to roads.  This is BAD public policy, people!  Word on the street is that this tax will bring in $119mm annually for roads and schools (which is what politicians say the money is for when they want more money...but does the money ever go there?).

However, the usual shortsightedness is in play. The politicians seem to overlook that transfer taxes slow growth and sales because:

  • It's a non-deductible expense.  Under the Tax Reform Act of 1986, real estate transfer taxes are non tax-deductible.  Interesting to note that in 1967, the federal government repealed the Federal Transfer Tax because it was unreliable and discriminatory...
  • Transfer taxes are not included in appraised values.  All government agencies (FNMA, VA, FHA, FHMC) have moved to a cash equivalency appraisal.  Due to the large (and growing) number of defaults, appraisers may not include costs (such as transfer taxes) that do not add value to a home.  Where does this really hurt?  A loan with a minimum down payment of 5% would see an increase of 20% in what's required (5% down plus 1% tax=6% down payment).
  • Entry-level and all other homes become less affordable.  Low to moderate income homebuyers could pay a fee greater than their down payment-especially in programs like Habitat for Humanity.  In essence, you're keeping these people out of homes altogether.  As affordability is a growing problem anyway, this fee makes that problem worse.  Recent experience in York County, SC, showed a decrease of 50% in affordable housing starts after the county imposed a transfer tax.
  • Taxes are grossly unfair to current residents.  Besides the fact that these taxes are inequitable to newcomers, they would grossly penalize the many buyers of new or existing homes who currently live in Charlotte. 
  • Charlotte will become less competitive.  Higher costs of new and existing houses will make our area less attractive for industrial recruitment because the availability of affordable housingg is a very important factor in site selection decisions.

Now, if you're not familiar with Charlotte, you should know that our real estate market spans a sprawling 7 county area.  Many people choose to live in the outlying counties already because of strong public school systems and lower property taxes.  This kind of a tax will force even more people out of Mecklenburg County and into the outlying areas...which will put a further strain on the roads, but kill the tax that's been proposed to improve them!

Please contact the Charlotte city council and the Mecklenburg County commissioners