With the best economic outlook in the country, low taxes, and a thriving job market, it’s no wonder that many people want to live in Utah. But with more people comes more demand for housing, driving up housing costs, and ultimately making the cost of rent unaffordable for many individuals and families. Since 2017, spending has increased substantially in this category as the Legislature has sought to provide a solution to this issue.
Utah’s housing problem becomes a taxpayer issue when substantial funds are spent on tax credits to incentivize building affordable housing, when programs such as TIFs are used, and when there are suggestions to fund affordable housing through new taxes.
Over the last few years, the Utah Legislature has passed various pieces of legislation that significantly increase spending on affordable housing. Notable bills include:
- SB 39 (2020) which appropriated $10MM (later reduced to $5MM following the onset of the pandemic) in one-time money to the Olene Walker Housing Loan Fund to preserve and maintain affordable housing
- SB 217 (2021) which created HTRZs, funded through Tax Increment Financing (TIFs), which are intended to develop affordable housing near public transit locations, and which will cost the state in reduced state and local tax revenues
SB 238 (2022) which appropriated $55MM to funding approximately 1078 affordable housing units in the state. (This appropriation was made from American Rescue Plan Funds, not state funds)
- SB 240 (2023) which developed a first-time homebuyers assistance program and appropriated $50MM to fund it. The program would provide up to $20,000 towards a first-time home and would be a lien on the property, to be repaid at the point of refinancing or selling the home.
Starting in 2017, appropriations to homeless programs and the Utah Housing Preservation Fund have totaled more than $100MM. Additionally, since 2005, state tax credits have been used in 147 low-income rental housing projects, helping to finance 8,006 affordable rental units with nearly $26 million in tax credits. While this figure does not compare to spending in other categories, the upward trend is still a cause for concern. The table below shows appropriations made to the Olene Walker Housing Fund for fiscal years 2018-2023. Note that although the appropriation in FY2023 is much lower than in FY2022, it is still ten times more than the appropriation in FY2020.
As always, taxation is driven by spending, and where new needs appear, new ideas on how to increase taxes to fund them also appear. One example of this is the suggestion that Utah implement a real estate transfer tax to fund affordable housing projects, as do many other states. In suggesting this, the Kem C. Gardner institute says:
“In 2022, the total value of residential real estate sales in Utah was nearly $25 billion; 40,639 sales transactions with an average price of $614,248.11 At four-tenths of one percent (the average of the 12 states that allocate funds to affordable housing programs), a Utah transfer tax would generate $100 million in revenue, while a rate of one-tenth of one percent rate would raise about $25 million in funding. At one-tenth of one percent, the average transfer tax would cost $614 per transaction, less than the sales tax on a new car.”
It is always perplexing when an organization that receives much of its funding from taxpayers, like the Kem C. Gardner Institute, is advocating for raising taxes. Thankfully, the Utah Legislature has been moving in the other direction with legislation to prohibit this specific tax hike.
There are several issues with this proposal. Firstly, a real estate transfer tax increases the cost of homebuying. This is counterproductive to the goal of making housing more affordable. Secondly, this further burdens homeowning taxpayers who are already subject to significant property taxes. Finally, this tax would also apply to commercial real estate purchases, making Utah a less attractive place for businesses to locate.
As mentioned, efforts to prevent this tax from being implemented were made during the 2023 General Session in SJR 1; however, the bill was never heard in the House and therefore was not passed. This bill would provide important protections for taxpayers, and we urge legislators to pass such legislation during the interim or in the next General Session.
While the issue of affordable housing is pressing and concerning, the answer should not be to levy new or higher taxes, nor should it be to simply increase spending. Your Utah Taxpayers Association encourages legislators to develop creative solutions to this important issue while being conscious of the impact on taxpayers.