Washington may change real estate excise taxes to build affordable housing

OLYMPIA – The Legislature may alter the real estate excise tax to help boost affordable housing programs in Washington.

The tax, commonly known as REET, is owed when a person sells property, and is imposed at both state and local levels. It increases incrementally based on the selling price.

Under the proposal that passed a key House of Representatives committee last week, some rates would be lowered and others would be maintained. The increased rates would affect real estate sales in excess of $3.025 million.

The extra $40 million raised by the changes over the next two years would go into a series of accounts that are trying to address the shortage of affordable housing in Washington.

Under current law, most money from this excise tax goes into the state’s general fund, which pays for a wide variety of state programs, including K-12 education and social services. This bill would allow the excise tax to also fund various housing accounts, with an emphasis on providing affordable housing.

Local jurisdictions can impose their own real estate excise tax. In Spokane County, local rates vary between 0.25% and 0.5%. The bill would allow a local jurisdiction to increase its levy by 0.25%, specifically for affordable housing programs.

Changing the excise tax is just one thing the Legislature is considering to generate revenue for affordable housing to target what lawmakers call a housing crisis. To keep up with demand, Washington will need 1 million homes built by 2044, and about half will need to be subsidized housing, according to a State Department of Commerce report.

Another proposal would raise the cap on state and local property tax increases from 1% per year, where it was set by a 2001 initiative, to 3%.

In his capital budget proposal, Gov. Jay Inslee suggested a referendum asking voter approval to borrow $4 billion to quickly build affordable housing. The Senate’s operating budget proposal didn’t include Inslee’s referendum, though the House budgeted funds to pay off the bonds.

Inslee told reporters Thursday that he’s willing to consider all avenues to fund housing efforts, including increasing real estate excise and property taxes.

“The private market is not going to be able to build as many houses as we need, particularly for those in the lower end of the spectrum,” Inslee said. “Not just for those who are currently homeless, but for those who are working 40, 50, 60 hours a week and can’t afford rent in Western Washington.”

The real estate excise tax increase passed out of the House Finance Committee with votes along party lines, Democrats for it and Republicans against.

House Speaker Laurie Jinkins, D-Tacoma, said she doesn’t know if the bill will have support in the Senate, but in her chamber it doesn’t have any obstacles, outside of a few “fine details.”

In terms of funding housing, she said lawmakers seem to prefer increasing the excise tax, which they consider a progressive tax, rather than the governor’s referendum.

“A really huge percentage of taxpayers are actually going to see a tax reduction in (the excise tax),” she said. “(It) is a permanent revenue generation, whereas the bonds are for a fixed period of time and we’d have to generate revenue to pay for the bonds. So the idea of just directly generating revenue, I think, was more appealing to people.”

Republican leadership from both chambers called the proposal “counterproductive” in the Legislature’s effort to increase affordable housing.

“In the middle of a housing crisis, to increase the tax on buying and selling houses seems like a particularly poor idea,” said Senate Minority Leader John Braun, R-Centralia. “They will claim that it only affects very expensive properties, but let’s just be clear that some of those expensive properties include multifamily housing that will increase rents.”

The bill has not been scheduled for a vote on the House floor.

It must pass both chambers before the session ends on Sunday.