Bill would up taxes on high-value home sales, boost affordable housing

OLYMPIA — To address a housing crisis, a Mill Creek Democrat wants to tick up the tax on sales of expensive properties.

For properties sold for over $3 million, an additional 1% transfer tax would be tacked on the original 3% excise tax, under Rep. April Berg’s House Bill 2276. The seller would pay the tax and the revenue would be routed to a fund to build affordable housing across the state.

One focus of the spending would be building homes for people with developmental disabilities.

Scott Livengood, the CEO of Bothell-based Alpha Supported Living Services, said a steady supply of affordable housing is crucial. On average, people with developmental disabilities live on a fixed income of about $900 per month, he said.

“We’re reliant upon finding affordable housing for them to live,” said Livengood, whose nonprofit provides homes for people in Snohomish, King and Spokane counties.

In four years, the number of people in supported living across the state has decreased by around 300 due to both a housing affordability crisis and workforce shortage, Livengood said.

If the “Affordable Housing Act” passes, it will be the first time the state set aside a dedicated revenue stream to build housing for people with developmental disabilities, Livengood said.

Of the new tax, 15% would be dedicated to causes like Livengood’s. In its first three years, the proposal is expected to generate almost $400 million, according to the state Office of Financial Management.

While one part of Berg’s bill focuses on a tax increase, she said another aspect would mean a tax break for the majority of Washingtonians.

Currently, the lowest tax rate for selling a home is 1.1%, for homes sold for $525,000 or less.

Berg’s bill would raise that first tier up to $750,000, creating a bigger bracket where sellers would have to pay less in taxes. As sales get more expensive, they’re taxed more.

“If you sell a house today, you’re going to pay more in taxes than you will tomorrow under this bill,” she said.

The bill only has support from Democrats.

In a press conference last week, House Minority Leader Drew Stokesbary, R-Auburn, said the tax would hurt the sale of multi-family housing.

“You can’t make housing more affordable by making it more expensive,” he said.

The Master Builders Association of King and Snohomish Counties also opposes the legislation, over concerns of high land costs.

Scott Hazlegrove, representing the association, said Thursday the tax would push land costs up, an expense that would trickle down through the development and eventual sale of the home.

“While there’s an opportunity to build more dense housing,” he told the House Finance Committee, “we still end up with high land costs.”

Marty Miller, the executive director of the Office of Rural and Farmworker Housing, said it would provide dedicated revenue for his nonprofit, which primarily serves low-income residents.

“To build affordable housing, you need affordable sources of capital and House Bill 2276 helps get us there,” he said.

For Berg, the bill goes beyond affordable housing. It’s also about addressing disparities in the state’s tax system.

Washington’s tax code is regressive, according to the state’s Department of Revenue. Without an income tax, the state gets the majority of revenue from sales and use taxes.

The real estate excise tax rate used to be a flat 1.28% for all property sales. In 2019, Democrats pushed a law that created a graduated scale for the excise tax.

Here are the current tax rates for property sales:

• $525,000 or less: 1.10%

• $525,000.01 to $1,525,000: 1.28%

• $1,525,000.01 to $3,025,000: 2.75%

• $3,025,000.01 or more: 3%

In Snohomish County, a local rate of 0.5% is added to the total. The one exception is Darrington, where the local rate is 0.25%.

If passed, the measure would go into effect in January 2026.

Here is how the money would be divided:

• 25% to the Housing Trust Fund, with 5% to prioritize housing for low-income farmworker households;

• 25% to the Apple Health and Homes account;

• 25% to the Affordable Homes for All account;

• 15% to the Developmental Disabilities Housing and Services account;