Real estate transfer taxes, long seen as a straightforward way for cities to generate revenue, are increasingly being blamed for impeding investment and mobility in both housing and commercial markets. A new report from Sage Policy Group argues that the surcharges, typically levied as a percentage of transaction value, introduce “friction” into sales activity—and that the effects are especially pronounced when valuations and deal flow are already weak.
According to the report, the burden of these taxes falls most heavily on lower-income homeowners because the levies are regressive and do not scale based on wealth. For households where a home represents the bulk of net worth, transfer taxes add disproportionately to the cost of a sale and can discourage mobility. Sage noted that a 100-basis-point increase in the cost of buying a home can reduce a family’s probability of moving by at least 8 percent, while a 1.1 percent transfer tax can trigger a 15 percent decline in sales.
The analysis also pointed to consequences in the multifamily sector, where additional transaction costs can weigh on development and conversions. Citing Los Angeles, Sage reported that multifamily construction fell 18 percent following a recent transfer tax hike, with production declining by roughly 1,900 units annually. Transactions subject to a higher threshold tax rate above $10 million were reduced by half. Conversion projects, already challenged by tight financing, are particularly vulnerable, as added taxes can make entire redevelopments financially infeasible.
The impact on commercial real estate is even starker, the report found, given the scale of transactions. In Los Angeles, commercial, industrial and multifamily sales dropped between 30 percent and 50 percent after the city introduced a top transfer tax rate of 5.5 percent. Other metros showed similar patterns. When Philadelphia raised its transfer tax at the start of 2017, the value of office space in the city declined at twice the national rate during the following year, well before the pandemic compounded market stresses. In Pittsburgh, which raised its tax in early 2020, the fallout was even more severe. By 2025, quarterly office transactions had plummeted 84 percent, while average price-per-square-foot fell by 70 percent.
Sage cautioned that while correlation should not be mistaken for causation, the timing of steep tax hikes and “sharper-than-average declines” in property values suggests local governments may be undermining their own housing and economic development goals when relying too heavily on transfer levies as a revenue source.
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