Questions Remain About Funding Source for Housing Opportunity Fund

19 Oct


This past May, Mayor Peduto’s Affordable Housing Task Force published their findings and recommendations for how we can best retain and create housing within reach of low- and middle-income Pittsburghers. Their very first suggestion was the creation of an Affordable Housing Trust Fund, now known as the Housing Opportunity Fund (HOF). The HOF would be a pool of money, overseen by a governing and advisory board, which would create new affordable housing in city limits, as well as fund the rehabilitation of preexisting structures. The HOF, like all things, takes money, and the city has set $10 million per year as the initial funding goal. Which method or combination of methods the city should select to fund the HOF remains to be seen.

One measure under consideration is asking for a 1% increase in the city’s realty transfer tax. This would give the City of Pittsburgh the highest realty transfer tax in the country, at 5%. For example, a home being sold in Larimer for $60,000 would incur $3,000 in transfer taxes; without the increase it would incur only $2,400. Although the transfer tax is customarily split between the buyer and seller in Pennsylvania, it is still a disproportionate burden on lower-income residents.

And this is what is at the heart of reservations about a transfer tax increase: its regressive nature. A 5% realty transfer tax will take a larger share of a low- or middle-income Pittsburgher’s income than it would a wealthier one. There are mortgages that allow borrowers to lump in their closing costs, but it comes with a higher interest rate, resulting in the borrower paying far more in the long run than the initial amount of the transfer tax. PCRG and its members support strengthening communities through homeownership, and a higher transfer tax would cut directly into low- and middle-income folks’ abilities to stay in and improve their homes.

In addition to its potential regressiveness, there are other questions surrounding the efficacy of an increase in the transfer tax, including its volatility (what if our real estate market cools?), the narrowness of the tax base (around 8% of people buy a home each year in the city, making it a relatively small pool of residents contributing to the goal of affordable housing), and the potential it has to further push homebuyers and businesses into municipalities with lower tax burdens. However, if the market for homes remains steady in Pittsburgh, a 1% increase in the realty transfer tax would provide the HOF with the $10 million a year it needs.

Another option on the table is a small increase in property taxes across the city. This has the benefit of drawing revenue from a larger base. After all, we would like to think all Pittsburghers benefit when the city is affordable for everyone. But raising property taxes would not go unnoticed by residents, and could prove politically unpopular, if not unfeasible.

PCRG has heard from our members loud and clear that they do support the establishment of the HOF. However, our membership continues to grapple with how to best capitalize this fund in a responsible, self-sustaining fashion. At this point, PCRG has taken no stance on which sources of funding are the best and least burdensome to lower-income taxpayers, though we will continue to provide our members with research and analysis.

Alix Levy

Research Analyst at PCRG
Despite repeated attempts, Alix has always found a reason to stay in her hometown of Pittsburgh. She received both her undergraduate and graduate degrees from the University of Pittsburgh, with a one-year stint in Freiburg, Germany studying the European Union. Prior to joining PCRG, Alix was a community development consultant and adjunct professor. You can find her running around the East End, reading on her back patio, yelling about politics, and planning what to cook next.