Should Sacramento tax the wealthy to subsidize first-time home buyers? | Opinion
The city of Sacramento has unfunded pension liabilities and deferred maintenance needs somewhere in the range of $3 billion. And instead of addressing these funding challenges, Mayor Kevin McCarty wants to raise a real estate tax to help first-time home buyers?
In his first year in office, McCarty is publicly test-driving the idea of increasing the city’s real property transfer tax for “high volume sales” some transactions, and using this money to help address some housing and homeless needs.
There are a lot of unmet needs in the community but how much can Sacramento do about them when the city is awash in needs of its own?
McCarty floated this transfer tax proposal at his State of the City address Monday morning at Midtown’s B Street Theater. There’s a tradition of sorts for mayors to unveil new proposals at these events.
But it’s going to take every persuasive bone in his body to convince Sacramentans that the city is equipped to get into the business of providing cash to first-time homebuyers straining to get into the capital’s increasingly expensive housing market.
“We’re looking to go to the voters and adjust our real estate transfer tax,” McCarty told several hundred civic insiders who came to The Sofia to hear of the mayor’s next moves. “We’re working with stakeholders and talking about how this will be structured.”
The public is a key stakeholder. So far it’s been left out.
The current transfer tax is set at $2.75 per $1,000 of a property’s purchase price. A home that sells for $500,000 as an example, would have to pay $1,375 in tax.
More than a dozen homes sell somewhere in Sacramento on a typical day, more than 5,000 residential transactions in 2024 and nearly 8,000 in 2023. One city spokesperson estimated that this tax increase could generate as much as $9 million a year. That would nearly double the revenue generated from this tax source. This isn’t enough money to solve some huge-world problems, but it’s enough to potentially do some good.
McCarty wants to spend the money on the first-time home buyers as well as for renters out of cash who face eviction and homelessness. He’d also set aside some money to buy more of his “tiny homes” for the homeless “micro communities” he is seeking to establish throughout the city.
If the mayor is truly looking to earmark funds from a transfer tax increase for specific needs, he’s also making his challenge at the ballot box considerably more daunting. Such “special” taxes generally require a two-thirds approval by voters. If the city simply wanted to increase this real estate tax for general city needs, that would only require a simply majority for approval.
This isn’t the only new tax idea that the city council has potentially in mind. It recently set in motion a process to consider increasing a tax on city businesses. Voters rejected a previous attempt at this business tax increase in March 2024 after the city failed to provide a legally-required public notice of the proposal. Is the City Council seriously thinking of two tax increases on the same November 2026 ballot?
I can appreciate the mayor’s impulse to look at the real estate transfer tax as a potential revenue source, given how polls have shown no public appetite to increase the sales tax for any need. Sacramento’s going to need every penny it can find to help address homelessness. Buying more tiny homes fits into what the city is already doing.
Helping distressed renters and first-time home buyers, however, represent very new and tricky efforts. These are far outside the core competence of Sacramento City Hall. How much and for how long would the city help a cash-strapped renter with public funds? How the city would pick the lucky few to buy that first home?
If the mayor and City Council are serious about these ideas, it’s time to daylight them in public meetings because right now it’s clear as mud which “high volume” real estate transactions would pay higher taxes. Is McCarty seeking to tax Sacramento’s wealthier residents to help the less fortunate every time an expensive home is sold?
How expensive does a home need to be in order to be subject to McCarty’s proposed tax? It would be helpful to know.
On Monday, McCarty lamented how long it takes to get things done inside the city. Beware of haste, however, on any tax-and-spend idea. If Sacramento helps a resident buy a home, as just one example, does the city ever get any money back?
This isn’t some back-room deal with the real estate industry. This appears to be a question of whether Sacramento should tax wealthy residents selling expensive homes so that more people can enter the housing market.
It could take a lot of council meetings to determine whether this is a good or bad idea. And they should have started by now.