Real estate transfer tax: Kicking a market when it’s down

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.

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