Should Atlanta consider a “mansion tax” to fund affordable housing?

To call the sprawling $12.9 million Buckhead estate that serial tech entrepreneur Tom Noonan sold in March a mansion is an understatement.

The 12 leafy acres of private land include a 14,000-square-foot, seven-bedroom house, a horse barn, riding trails, salt-water pool, tennis court – and even a par-three golf hole. 

Under Georgia law, the real estate transfer tax was approximately $12,900, since the state taxes all real property sales at 0.01% across the board. Had Atlanta been subject to Los Angeles’ new 5.95% transfer tax for properties valued over $10 million, the transfer tax on Noonan’s mansion would instead have been a whopping $767,550.

In a nation starved for affordable housing and with an increasing number of homeless people living in their cars or on the streets—is it fair to ask for a big tax hike on the homes of multimillionaires and billionaires to fund housing programs, as the new L.A. real estate sales tax does? Or will it scare real estate investment away to places where taxes are lower?

More American cities and states are weighing those questions. Since 2018, progressive-leaning cities and counties have passed or considered a wave of so-called mansion taxes—additional taxes on high-end properties. According to a new report from the Institute on Taxation and Economic Policy, a liberal think tank, at least 17 local governments are now levying these kinds of taxes–some just on residential property and others on all real estate transactions. A dozen more are considering them. 

Should Atlanta be one of them?

The rise of the mansion tax

Most excise taxes on real estate sales throughout the country are subject to the same flat rate. The state of Georgia’s rate is $1 for the first $1,000 of the sale price and 10 cents for each additional $100—no matter the property’s price. That works out to a property sales tax rate of 0.01%. 

That means Tom Noonan–a co-founder of Internet Security Systems, which sold for $1.3 billion to IBM–was assessed at the same real estate transfer tax rate for the sale of his Buckhead mansion as an Atlanta Public Schools teacher making $50,000 a year would pay on a $200,000 condo. 

The case for mansion taxes goes something like this: Wealthy people’s income is taxed at a higher percentage than that of the working class. Shouldn’t that be the case for their ultra-pricey housing transactions too?

“Mansion tax proposals are popping up to raise revenue from folks who have really benefited from increasing housing value and use it to support people who have been most harmed by the housing crisis, especially people experiencing homelessness,” said Samantha Waxman, the deputy director of state policy research for the Center on Budget and Policy Priorities, another Washington, D.C. think tank advocating for mansion taxes.

Cities and counties in six states currently levy these special one-time sales taxes for houses sold over a certain price threshold, most notably New York. The state has a base residential real estate transfer tax of 0.4%, but for residential property sales in New York City, the state tacks on an additional 1% on residential property sales of $1 million and then another 0.25% to 2.9% for those over $2 million.  The cream of the crop—homes valued over $25 million—face a combined top rate of 4.55%.

What’s beneficial about increasing real estate transfer tax rates for high value properties  is that it provides a steady stream of revenue for housing programs, said Waxman. “It’s really important to have ongoing funding when we’re talking about really meeting the high need for affordable housing solutions instead of one-and-done, where you just build a few units.”

Nationwide, these mansion taxes collectively added nearly $3 billion in annual revenue last year to local governments’ affordable housing programs, reported the IETP study. 

That’s one reason why more cities and states are adopting or considering mansion taxes. Last year, Los Angeles voters passed Measure ULA to fund initiatives to mitigate the city’s housing crisis. It levies an extra 4% in sales tax to the base 0.45% rate for residential and commercial properties selling for over $5 million–and then another 1.5% (for 5.95% total sales tax) for those over $10 million. 

L.A.’s mansion tax revenue is directed to programs to assist low-income renters, seniors, and people with disabilities, as well as to tenant protections and affordable housing production.

Similarly, nearly three-quarters of Santa Fe, New Mexico voters last year approved a 3% mansion tax to pay for affordable housing initiatives, in response to soaring real estate prices. The city of Santa Fe estimates the tax will generate about $6 million annually for its affordable housing trust fund. 

The new home sales tax in Santa Fe is graduated, so the buyer pays no transfer tax on the first $1 million in value for a residential property, and then 3% on any amount over that. Thus, for a $1.2 million home sale, the 3% tax would apply to $200,000 in value, for a total tax of $6,000. 

Unintended consequences

Not everyone is thrilled about the idea of increasing sales taxes for high-value properties, however. 

Critics say that would affect everyone’s bottom line—not just the rich—because of a trickle-down effect. Most cities that have enacted graduated real estate transfer tax schemes levy them on both residential and nonresidential property sales, according to ITEP. That means a multi-family property buyer could decide to pass on the increased sales tax costs to overburdened renters. 

Earlier this month, Chicagoans rejected Mayor Brandon Johnson’s plan to enact Bring Chicago Home, a new real estate sales tax of 2% to be paid by the buyer on all property valued at $1 million or more and 3% for real estate valued over $1.5 million. It also would have decreased the transfer tax for real estate sales under $1 million from 0.75% to 0.6%. Proponents claimed the tax scheme would have raised $100 million a year for homeless services. 

AJ LaTrace, a real estate journalist in Chicago, says Millennials and Gen Zers want more affordable housing but aren’t thrilled about the possibility of new real estate taxes as a way to achieve this. “You reform the zoning laws, build more housing, and the prices can come down,” said LaTrace.

According to LaTrace, the timing of Bring Chicago Home was also not ideal because Chicago’s real estate market has yet to fully recover from the pandemic. Office leasing  has trended upwards since the record lows of 2021, reducing the vacancy rate, but bumping up the real estate sales tax rate could prompt commercial developers to look elsewhere to build. 

Higher real estate sales taxes can also freeze the luxury housing market. Right before Los Angeles’s additional 4% sales tax on residential property valued over $5 million took effect in April 2023, there was a massive surge in multi-million-dollar housing deals; 126 home and condo sales above $5 million took place to avoid hundreds of thousands of dollars in new taxes, reported the L.A. Times. But in April, after the tax took effect, there were only two residential transactions above $5 million.

Proponents of L.A.’s new mansion tax estimated it would generate about $900 million annually. However, L.A. mayor Karen Bass’s budget for fiscal year 2024 projected only $150 million in additional revenue, due to the luxury market slowdown. 

“When it comes to mansion taxes, it seems like a good idea on paper. But in practice, it doesn’t seem to work out as well as leaders or policymakers might hope,” said LaTrace. 

Wither Atlanta?

Property taxes are a hot topic in Atlanta, but real estate sales taxes aren’t necessarily on anyone’s radar. That’s true of much of the South. Nearly all the mansion taxes passed in the past five years are in liberal states like California, New York and Maryland, just outside of Washington D.C.

Instead, the Georgia Legislature just passed a bill to cap increases in home value assessments to the inflation rate, which sharply limits how much homeowners’ property taxes can increase each year. 

One local affordable housing expert, Dan Immergluck, said he’d support a mansion tax on home sales in Georgia, but with caveats. 
The Georgia State University urban studies professor argues that they’re a volatile source of revenue that depends on the strength of the real estate market. “A better approach is a graduated property tax that taxes higher-value properties at higher rates and lower-value ones at lower rates,” Immergluck told Atlanta Civic Circle.