Residential Tax Exemption
An ongoing hindrance to housing affordability is the fact that municipalities cannot do much to legally distinguish between different classes of homeowners — as far as the law is concerned, corporations acquiring rental properties is no different from an on-site landlord renting out the second unit of their duplex. This inability to distinguish between the two sends home prices through the roof because individual would-be buyers are in the same class as private equity firms, which have all the buying power in the world. To put it another way: I can’t compete with Blackstone because they’ll always have more money than me.
One of the few exceptions to this in our state is the residential tax exemption, which provides a property tax break to property owners living in their primary residence (Blackstone cannot be your next door neighbor). Under M.G.L., up to 35 percent of the average assessed value of all residential properties in a given municipality can have this exemption. This calculator is another way to understand it, and this PDF explains it better than the text of the law does. It doesn’t change the total amount of money the city takes in from property taxes — in fact, it raises the residential tax rate — but, if a home is owner-occupied, the first X dollars of the assessed value is exempt.
Understanding the effect of this is more important than the math — the main beneficiaries are homeowners who live in moderately priced homes (which, in Medford, means below a million dollars). The tax rate goes up for renters and people who live in expensive homes. Like anything else, it’s a tradeoff. The 20 communities that have adopted it are either renter-heavy (Somerville, Cambridge), in which the effects on renters can be spread out, or are extremely wealthy and have very acute affordability problems that block out middle-income owners (e.g. Nantucket). Owners with roommates who rent with them would benefit uniquely from it.
City Council heard about this idea at our last meeting during the annual tax classification hearing, in which our assessor said that, if we adopted the full 35%, the breakeven point would be $1,038,727 — in other words, if a person lived in a home worth $1.038 million, they wouldn’t pay any more or less in taxes without it; if they lived in a cheaper home, they would pay less; and if they lived in a $2 million home, they would pay more. The annual tax rate would increase to $12.29 per $1000 (it’s at $8.80 now). The analysis can be seem in the assessor’s slides.
Since I’ve been on Council, we’ve discussed this exemption every year, then said that we’d need six months to do the appropriate outreach and calculations before deciding on that, then we never really get around to it, and the cycle repeats. At this past meeting, we finally decided to spend some time to seriously investigate it, when the matter was referred to a committee of the whole meeting. I think it’s worth taking some time this year to explore.
