- Cape Cod, one of the priciest housing markets in the U.S., is considering a 2% real-estate transfer fee on luxury homes above $2 million to fund affordable housing. Similar “mansion taxes” in Los Angeles and Rhode Island show how other expensive markets are turning to surcharges on wealthy homeowners to redistribute housing wealth.
Cape Cod is one of the most expensive housing markets in the U.S. While the median home price in the beachy region of Massachusetts is about $600,000, waterfront properties and homes in exclusive areas often exceed $1 million, according to Warren Buffett’s Berkshire Hathaway Home Services.
And luxury homes in the region might get even more costly as Cape Cod lawmakers consider a tax on wealthy homeowners. The proposal, currently before the Barnstable County Assembly of Delegates, would tack on an extra 2% surcharge on luxury-home sales above $2 million.
The goal of the proposed real-estate transfer fee is to generate up to $56 million per year for affordable and year-round housing to make Cape Cod a place where “working families, seniors, and young people can afford to live,” according to the Falmouth Democratic Town Committee.
Since housing is so expensive on the Cape, the majority of homeowners there include affluent second-home buyers, pre-retirement couples, high-paid remote and hybrid workers, and investors, according to Massachusetts-based real-estate firm Guthrie Shofield Group.
“We’ve always been a place where the wealthy or affluent come to vacation and when they come to vacation, it’s typically service-based employees and that workforce waiting on them,” Alisa Magnotta, CEO of Hyannis, Mass.-based Housing Assistance, said in a statement.
Indeed, homeowners for a majority of the towns on Cape Cod need to make about $200,000 to $300,000 or more per year to afford to buy a home there, according to Housing Assistance. Meanwhile, Cape Cod workers’ wages are much lower when compared to the rest of the state: While the median household income in Massachusetts is about $101,000, according to Housing Assistance, the median income in many Cape towns is just about $70,000 to $80,000.
“A transfer fee is not a tax on regular people—it’s a way to reallocate some of the wealth from second or third home buyers to support the people who make this community what it is,” Ella Sampou, a community organizer with the Lower Cape Community Development Partnership, said in a statement.
Therefore, the property exchange fee could help build for the “missing middle,” or a range of housing options like duplexes, townhomes, or apartment complexes that are often more affordable than single-family homes for the average wage earner.
Other expensive cities with extra real-estate taxes
Cape Cod isn’t the first expensive housing market to introduce an extra real-estate tax on the wealthy. Similarly, the so-called “mansion tax” in Los Angeles tacks on an additional 4% tax to property sales of at least $5 million and a 5.5% tax for $10 million-plus properties.
The cost of the tax is typically paid by the seller, and is something separate from a home’s sales price, but can be a “massive amount of money,” Selling Sunset star and Oppenheim Group agent Emma Hernan previously told Coins2Day. On the flipside of the argument about a real-estate tax on luxury properties, Hernan also described it as a “nightmare” for both sellers and agents.
In LA, for example, someone selling a $5 million home would have to pay an extra $200,000 they “didn’t really factor in when they bought the home because the mansion tax wasn’t in play,” Hernan said.
There’s also a mansion tax in Rhode Island targeting luxury second homes and non-owner-occupied properties. It’s commonly referred to as the “Taylor Swift Tax” since the pop star owns a $17 million mansion there.
Beginning next year, Rhode Island will slap a surcharge on vacation homes in the state that are worth at least $1 million. Mansion owners will have to pay $2.50 for every $500 of assessed value above the first million. For Swift, that would be an extra $136,000 in property taxes. (A Cape Cod home previously owned by Swift just recently went up for sale for $14.5 million).
