Summer Hot Spot Eyes Transfer Tax on $1 Million Sales To Fund Local Housing

Cape Cod is one step closer to funding "missing middle" housing with a real estate transfer tax on home sales of $1 million or more, after the Barnstable County Assembly of Delegates approved a home rule petition.

The petition modifies an earlier version of the rule discussed this summer, lowering a proposed luxury tax threshold from $2 million to $1 million, and replacing a flat 2% surcharge with a flexible rate. If the petition is adopted, localities in Massachusetts would have the power to set that rate anywhere between 0.5% and 4% on the portion of a sale exceeding $1 million.

The proposal could generate an estimated $60 million annually to fund affordable and year-round housing—a revenue stream local leaders say is desperately needed as prices spiral beyond reach.

And it comes amid a string of similar levies on the East Coast, where Rhode Island and New Jersey have imposed a “mansion” or “Taylor Swift tax” on sales of luxury homes to offset funding shortfalls and boost affordable housing.

But for the rule to become law, it must first be approved by state lawmakers in Boston. It then returns to the local level, where it must be ratified by residents at both a town meeting and a subsequent town election.

Why this fee, why now

The push for change stems from Barnstable County’s April declaration of a housing crisis, a move that formally recognizes Cape Cod’s affordability isn’t just a problem but a full-blown emergency.

"Home prices are skyrocketing," says Barnstable County Assembly of Delegates Deputy Speaker Dan Gessen, of Falmouth. "It's making it much harder for year-round residents to stay here, for the working population to continue making a life on the Cape."

Without that population, Gessen tells Realtor.com®, Cape Cod is at risk of losing what's made it such a sought-after destination.

"The median age on the Cape when I was born here, was 43 years old in the year 2000. It's 57 now. We are losing that year-round population that makes the Cape such a special place," he says.

Advocates like Gessen point to skyrocketing housing prices as a major driver of the problem.

“Home prices for people that live on Cape Cod skyrocketed by more than 43%,” Gessen recently told CapeCod.com.

“If you didn’t inherit a house, or if you are not independently wealthy, [living here] is nearly impossible, and so we’re losing the very fabric of our communities,” he continued.

In fact, housing prices have become so prohibitive that the town of Orleans was forced to scrap a rule requiring firefighters to live within 7 miles of their station. While the mandate was intended to ensure quick emergency response times, affordable housing within that radius had effectively vanished.

As Gessen concluded in the press release for the crisis declaration, “This resolution does not solve the crisis on its own, but it does one thing that those in power often struggle to do: admit that we have a problem, and commit to identifying real, actionable solutions.”

How the transfer fee would work

If the fee is enacted, participating towns would have the option to set a transfer tax on home sales of $1 million or more at 0.5% and 4%—but only on the portion of a home sale price above the $1 million threshold.

"Rather than having a one-size-fits-all approach for the Cape, the way we adopted it is we set the floor at $1 million, we set a range of percentages from half-percent to 4%, and we left it up to each individual municipality to decide," explains Gessen.

That will allow each town to decide what works best for its housing market, he says. The 15 towns that make up Barnstable County have significant variation in their housing markets. In Bourne, for example, the median home price is $695,000. In Orleans, it's closer to $1,525,000.

In Cape Cod overall, more than 1,200 homes were sold at prices of $1 million or more, according to data from Realtor.com—a staggering number that highlights both the high prices of the area and the scale of potential impact.

So, where would all those funds go? If the fee is enacted, Barnstable County would collect the revenue, setting aside 10% to help cover administrative costs and housing efforts regionally before distributing the remaining 90% back to towns. Each town would then have the power to decide how to use those funds, whether it be buying land to support year-round housing, imposing deed restrictions to designate housing for year-round residents, or offering financial assistance to qualified buyers.

It's modeled after the Cape Cod and Islands Water Protection Fund, which has raised hundreds of millions of dollars for wastewater projects through a small surcharge on short-term rentals. But in the case of the transfer tax, the same approach would fund year-round and workforce housing.

Who supports it

The proposal has drawn a wide swath of support, spanning business leaders, housing advocates, and county officials, in an unusually broad coalition for a tax proposal.

Housing groups argue the money would finally give towns the resources to move plans off paper: securing deed restrictions to preserve year-round homes, building housing for municipal workers like firefighters and teachers, and offering assistance to first-time buyers who are otherwise locked out of the market.

Supporters also point to lessons from the state’s millionaires tax, which adds a 4% levy on taxable income over $1 million. While many had feared that wealthy residents would flee, there are now more millionaires in Massachusetts than before the tax was introduced.

"There is nothing wrong with putting the burden of making sure we have a year-round community onto the seasonal population that enjoys and benefits from having that kind of community," adds Gessen. "They want to be able to go to the coffee shop on Main Street. They want to be able to go to the ice cream store. They want to have lifeguards at the beaches they go to. And none of that is possible if we don't have a year-round population here."

The Cape Cod Chamber of Commerce is on board, too, warning that the region’s economy is already buckling under the weight of the housing crisis.

“Nearly 30% of the region’s workforce now commutes to the Cape each day," CEO Paul Niedzwiecki said. "We are going to turn into something very different if we don’t make aggressive and transformative moves to protect the middle class.”

What critics say

Not everyone is likely to embrace the proposal. Skeptics argue that a new fee on the sales of multimillion-dollar properties could discourage high-end buyers or dampen the luxury real estate market that has helped fuel the Cape’s economy.

Others are concerned that the tax plays into a growing pattern of long-tenured middle- and working-class homeowners getting hit by tax penalties that were never meant for them.

Richard Waystack, a 40-year Realtor in Harwich who owns five rental properties, told the Boston Herald that the $1 million list price is a red herring.

“These are not wealthy people selling,” he said. “That’s just the cost of housing on the Cape.”

To his point, nearly 1 in 3 homeowners today is exposed to a hidden home equity tax if they were to sell today because they've accumulated more equity in their primary residence than the current capital gains exclusion for single filers protects. By 2030, that number is expected to grow to 56% of homeowners.

There are also worries about uneven adoption. Because towns can decide individually whether to opt in, some fear communities may compete with one another—pitting municipalities that pass the fee against those that don’t, potentially shifting sales activity across town lines.

A national pattern

The Cape isn’t alone in targeting luxury real estate to pay for more housing. Lawmakers across the country are increasingly looking at second homes and multimillion-dollar properties as a funding source for affordability.

Rhode Island’s “Taylor Swift Tax” kicks in this summer, slapping a surcharge on nonprimary residences worth over $1 million. For Swift’s Watch Hill mansion, that means an extra $136,000 a year in property taxes.

Montana has taken a different approach. A statewide overhaul shifts the tax burden away from primary homes and onto second homes and short-term rentals with a 1.9% flat rate. Lawmakers there hope it not only boosts revenue but also encourages absentee owners to sell, injecting scarce inventory back into the market.

Cape Cod’s proposal slots neatly into this national story. What will determine if it becomes a model or a cautionary tale is whether local voters decide the region’s housing crisis is urgent enough to justify asking $1 million home sales to help pay for a year-round future.