Credit: Darrow Montgomery

First-time homebuyers in the District won’t have to pay as much in recordation taxes as they do now, under a bill the D.C. Council is expected to pass on final vote today. But some advocates say the measure will restrict D.C.’s ability to invest in affordable housing, homeless services, and other key government functions with less revenue.

Proposed by Councilmembers David Grosso, Anita Bonds, and Jack Evans in October 2015, the legislation would lower excise taxes on new homes for people “who have never owned residential property or an economic interest in a cooperative unit” in D.C. Currently, the “deed recordation tax” rate is 1.1 percent of a home’s value for properties worth less than $400,000 and 1.45 percent on properties worth more than $400,000—charged to both the buyer and seller. The bill would reduce these rates to a flat 0.725 percent for first-time purchasers. Eligible individuals would have to file written statements attesting that they are first-time buyers and agree to live in the home as their “principal residence” for at least five years. Owners of property in other jurisdictions could qualify if they’re buying their first house within the District.

“It’s unfortunate that I have to vote against something that is framed as benefiting first-time homebuyers, but when you look closely at the details in this bill, you’ll see that it isn’t really about first-time homebuyers at all, and in the end it takes money away from a fund that helps our lowest income residents,” At-Large Councilmember Elissa Silverman said when the council provisionally approved the legislation on Dec. 6. Acknowledging that it’s “incredibly hard to save money for a down payment” in D.C., Silverman said the bill “creates an incentive that will benefit a homebuyer in Ward 3 five times more than it will benefit [one] in Ward 8″—rendering it “regressive.”

Critics of the measure also contend that it would decrease dedicated revenue to the District’s Housing Production Trust Fund, a main source of financing for affordable housing sites, and other services. As the D.C. Fiscal Policy Institute explained Monday, the District already offers tax assistance to first-time homebuyers in a “well-targeted” way that simultaneously covers some 40 percent of townhouse, duplex, and condo sales. “Because many low- and moderate-income homebuyers already don’t have to pay the deed tax, most of the [proposed] tax cut would go to buyers of high-priced homes,” DCFPI’s Claire Zippel wrote, adding that it would shrink the city’s revenue. 

A council committee report notes that the loss in dedicated HPTF funds would be “fully” offset “through a variety of sources”—which has the benefit of “not relying on the volatility of the revenue stream” from recordation taxes. Still, a fiscal impact statement by D.C.’s Chief Financial Officer finds that the bill would cost $11.3 million in lost revenue in fiscal year 2017, and an estimated $51 million over the next four fiscal years. 2013 U.S. Census data showed 40 percent of homes in the D.C. metro area were owned by first-time homebuyers. The council’s budget office says the legislation is subject to appropriations, so money would have to be identified next year to fund it.

Credit: D.C. Chief Financial Officer

Backers of the legislation, including real estate professionals, say the bill could encourage more people to buy homes in the District and contribute to the local economy over time. In characterizing the bill at a hearing in February, Evans said D.C.’s recordation taxes were higher than those in neighboring jurisdictions, and posed barriers to owning property. A 2013 Howard University study found that only New York City had higher such taxes than D.C.

It’s possible the bill could be amended Tuesday to establish an income cap on the tax break, based on the area median income. That way, wealthy residents coming in from other cities and towns would pay their perceived fair share to live in the District. Earlier this month, Mayor Muriel Bowser announced expansions of first-time homebuyer programs for residents.

“This bill needs limits on it,” Ward 3 Councilmember Mary Cheh, who voted to advance the legislation pending improvements, said on first reading. “It’s a great big giveaway in circumstances where it’s entirely unnecessary.”