By Dr. Eric Fruits
Several states are considering a real estate transfer tax to help boost state and local budgets. During the booming real estate market, such taxes were considered to be relatively low-cost: When a market is hot, everyone can get warm. Now that housing is cooling down, the transfer tax throws a wet blanket on shivering sellers.
Earlier this year, Toronto imposed a land transfer tax on the sale of real estate within its municipal boundaries. A recent study (PDF ) published by the C.D. Howe Institute  finds that the transfer tax caused a 16 percent decline in the number of single-family homes sold and a 1.5 percent reduction in house values. Unsurprisingly, the decline in house values is approximately equal to the amount of the tax.