HOUSE BILL REPORT
HB 1867
As Reported by House Committee On:
Finance
Title: An act relating to allowing counties or cities to impose a real estate excise tax for the purpose of developing affordable housing, subject to the will of the voters.
Brief Description: Allowing counties or cities to impose a real estate excise tax for the purpose of developing affordable housing, subject to the will of the voters.
Sponsors: Representatives Ramel, Lekanoff, Doglio, Duerr, Parshley, Reed, Scott, Simmons, Macri, Fosse, Pollet and Zahn.
Brief History:
Committee Activity:
Finance: 2/13/25, 2/26/25 [DPS].
Brief Summary of Substitute Bill
  • Expands eligibility to impose a local affordable housing real estate excise tax (REET) to all counties.
  • Expands eligibility to impose a local affordable housing REET to all cities under certain circumstances.
  • Changes the local affordable housing REET rate to be up to 0.5 percent.
HOUSE COMMITTEE ON FINANCE
Majority Report: The substitute bill be substituted therefor and the substitute bill do pass.Signed by 9 members:Representatives Berg, Chair; Street, Vice Chair; Mena, Parshley, Ramel, Santos, Scott, Springer and Wylie.
Minority Report: Do not pass.Signed by 5 members:Representatives Orcutt, Ranking Minority Member; Jacobsen, Assistant Ranking Minority Member; Abell, Chase and Penner.
Minority Report: Without recommendation.Signed by 1 member:Representative Walen.
Staff: Rachelle Harris (786-7137).
Background:

Real Estate Excise Tax.

Real estate excise tax (REET) applies to real estate transactions including the sale of property and the transfer of controlling interest in property.  The rate applies to the selling price and is usually paid by the seller.  The REET is due and payable to the county treasurer in which the property is located on the date of the sale, regardless of the date of recording, except in a controlling interest transfer.  The REET is imposed at the following rates:

  • 1.1 percent if the selling price is equal to or less than $525,000;
  • 1.28 percent on the portion of the selling price that is greater than $525,000 but equal to or less than $1.525 million;
  • 2.75 percent on the portion of the selling price that is greater than $1.525 million but equal to or less than $3.025 million; and
  • 3 percent on the portion of the selling price that is greater than $3.025 million.

 

Local governments are authorized to impose a local REET in addition to the state rate.  The two main local REET options are:

  • REET 1:  A local government may levy a 0.25 percent REET.  The revenues from REET 1 are primarily to be used for capital projects and limited maintenance.
  • REET 2:  An additional 0.25 percent REET may be imposed by cities and counties that are fully planning under the Growth Management Act.

 

Local REET capital projects are local government public works projects for planning, acquisition, construction, reconstruction, repair, replacement, rehabilitation, or improvement of:

  • streets, roads, highways, and sidewalks;
  • street and road lighting systems and traffic signals;
  • bridges, domestic water systems, storm and sanitary sewer systems;
  • judicial, parks and recreational, administrative, law enforcement, and fire protection facilities;
  • trails and libraries;
  • certain housing projects;
  • river flood control projects and certain other waterway flood control projects; and
  • technology infrastructure that is integral to the capital project.

 

Additionally, there are several other local REET options for local governments:

  • a local government not levying the optional 0.5 percent sales tax under RCW 82.14.030 may levy an additional local REET of up to 0.5 percent;
  • a county may impose an additional local REET of up to 1 percent for the acquisition and maintenance of conservation areas; and
  • a county that imposed the full 1 percent for conservation areas prior to January 1, 2003, may also impose a local REET of 0.5 percent for affordable housing.

 

Affordable Housing Real Estate Excise Tax.

The REET option that is available to a county that imposed the full 1 percent for conservation areas prior to January 1, 2003, may only be imposed if approved by a majority of the voters and it is for a specified period.  The tax is an obligation on both the buyer and the seller.  The county legislative authority determines the obligation terms, with at least 50 percent being the obligation of the buyer.

 

Revenues from the tax must be used exclusively for development of affordable housing, including acquisition, building, rehabilitation, and maintenance and operation of housing for very low-, low-, and moderate-income people and those with special needs.  Revenues must be placed in an affordable housing account, and disbursements from the account must be made via a competitive grant and loan process.
Summary of Substitute Bill:

The rate for the local affordable housing REET is up to 0.5 percent.

 

The requirement that a county must have imposed a 1 percent tax for conservation areas in order to establish a local affordable housing REET is eliminated.  All counties are given the ability to impose a local affordable housing REET option.  Cities may also impose a local affordable housing REET, if the county in which the city is located has either adopted a resolution of intent stating that they do not intend to impose the local affordable housing REET, or if the county has not imposed the REET by January 1, 2027.  If a county imposes the local affordable housing REET after a city has done so, the county must provide a credit against its tax for the full amount of the tax imposed by the city.
Substitute Bill Compared to Original Bill:

The substitute bill changes the rate of a local affordable housing REET that can be imposed to up to 0.5 percent.  Additionally, it changes the timing of eligibility for cities to impose the affordable housing REET to either:

  • after the county has adopted a resolution of intent stating that they do not intend to impose the REET; or
  • if the county has not imposed the REET by January 1, 2027.

 

The substitute bill requires that if a county imposes the affordable housing REET after a city has done so, the county must credit against its tax for the amount of tax imposed by the city.
Appropriation: None.
Fiscal Note: Available.
Effective Date of Substitute Bill: The bill takes effect 90 days after adjournment of the session in which the bill is passed.
Staff Summary of Public Testimony:

(In support) This is a tool for local governments to address the housing crisis.  Diversity in available housing options is important to developing financing for the projects.  The equation is very difficult to solve for partners trying to solve the housing crisis.  Local property tax allows cities to leverage money towards housing development.  A local option housing tax would help partners in housing development.  Local decisions will vary widely depending on what works best.  This is put before voters, so it is not a councilmanic tax. 

 

The housing crisis is especially difficult for low-income households.  The state needs a multipronged approach to solve the crisis.  Local governments are also facing budget deficits, so new options are critically needed.  Revenue raising options that are provided in collaboration with communities are a reasonable way to fund affordable housing.  Orcas Island experiences wealth inequality, and the local option for affordable housing has made a huge difference in the housing crisis within the county.  The tax allows for meeting the needs of low- and moderate-incomes, which helps diversify the solutions available. 

 

We need more tools to figure out how to house all the people who need housing.  Counties are in need of operational funding.  Local funding is key to the development of affordable housing to make projects viable.  We need additional REET flexibility and further options.  Finding affordable homes is an uphill battle for many, especially for immigrants.  This policy supports economic growth and stability for all.  Affordable housing communities allow people to live stable lives that they would not have access to otherwise.  Voters tend to have a preference for REET over property taxes.  Buyers and sellers agree on a price, so a transfer fee is like any other costs.  This provides rental housing for low-income people as well as workforce housing.  All cities and counties should be given the option to vote to raise money for affordable housing development.

 

(Opposed) There is no denying that we need more housing money, but money is not to be found via taxes.  Sky high house prices and high interest rates contribute to difficulty with housing.  More taxes will isolate the ability to purchase to companies or investment firms.  This bill threatens income in counties that adopt this REET.  The realtors have supported various revenue options to address housing issues but are opposed to this.  This is a doubling of REET at the local level.  The state already has one of the highest REETs in the country.  The problem with using housing sales as a revenue source is that it is extremely volatile.  Local property levies are a more stable source of funding.  This will price people out of the market.

 

(Other) The City of Kirkland has long championed flexibility in the use of REET revenues for affordable housing.  Cities need more tools to support housing projects and love when they are voter-approved. 
Persons Testifying:

(In support) Representative Alex Ramel, prime sponsor; Nancy DeVaux; Paul Schissler, Madrona Community Development spc; Carl Schroeder, Association of Washington Cities; Amanda DeShazo, Tacoma-Pierce County Affordable Housing Consortium; Michele Thomas, Washington Low Income Housing Alliance; Lisa Byers, OPAL Community Land Trust; Amanda Lynn; Joseph Joshy; Yusuf Bodiat, Crossfire; Arjan Singh; Sarah Dickmeyer, Plymouth Housing; Hannah Stone, City of Bellingham; Paul Jewell, Washington State Association of Counties; Jonathan Scanlon, Whatcom County; and Lisa Janicki, Commissioner, Skagit County.

(Opposed) Matthew Huang; Jan Himebaugh, Building Industry Association of Washington; and Bill Clarke, Washington REALTORS.
(Other) Penny Sweet, Council Member, City of Kirkland.
Persons Signed In To Testify But Not Testifying: None.