One segment of the housing market can and should bear higher taxes to generate funding for affordable housing. That is realtors, who take a percentage of the sale price of houses built and maintained by other people. As real estate prices rise, they earn increasingly higher commissions for the same effort.  Higher taxes on realtors can alleviate the harm being caused by decades of poor land use and zoning regulations, stifling building codes and regressive, constantly rising property taxes.

Those harmful policies must be reversed, but it will take a sea change in political power and perspective. The current Democrat majorities at state and local levels will, until that change comes, continue to seek sources of funding for affordable housing. The taxes they choose, such as property, real estate excise and sales taxes, only aggravate inequities. Bringing real estate commissions into the mix can generate substantial revenue for affordable housing funds, and contribute greatly to eventful, more meaningful reforms. This can be done without making housing less affordable and less available, serious flaws in the other solutions housing activists have been pursuing.

Readers of this site are likely surprised to see me calling for a tax increase. But back during the Prop 1 campaign in Jefferson County in 2017 (a ballot measure to raise property taxes for affordable housing) I made the same proposal. The need for affordable housing has only gotten worse. I am not talking about housing the itinerant homeless. We are seeing working class people and small business owners unable to live to in our county because they cannot find a place to live. Creative, industrious people that can contribute to our growth and prosperity are departing or avoiding Jefferson County. The ripple effect of their aversion to participating in our community hurts all of us on many levels, now and in future years.

Make no mistake, the decades old policies and ideology of the Democrat monopoly on power is responsible for this situation. They have determined zoning, building codes, land use regulations and tax policy. They seem more averse to achieving substantial corrective policy reforms than they do to raising taxes. Currently, we are seeing housing activists, working with Democrat sponsors, pursuing and achieving increases in sales taxes and appropriations, which, of course, are funded by taxes.

The resistance in Jefferson County to raising property taxes presents an opportunity for considering what should have been to housing activists an obvious, just and simply administered source of tax revenue: real estate commissions.

I would venture that housing activists have not examined this idea because they have been co-opted, if not corrupted, by politically influential realtors and their trade groups. Perhaps I will expand on that observation as this series unfolds.

Consider the alternatives housing activists have been pursuing.

Increasing Property Taxes. Here, in Bellingham, Seattle, Tacoma and elsewhere, they have sought, and sometimes won, property tax hikes in the name of combating homelessness and housing insecurity. But when they have succeeded they have only made housing for everyone more expensive, placed homeownership out of reach for more people, and caused rents to rise.

Extracting Concessions from Homebuilders.  Housing activists sometimes simply want to have government require builders to create affordable housing. To the builder, that means spending their resources and time on housing that does not pay its way or earn a positive return as it is sold or rented at below market rates. Putting greater burdens on home builders in the name of increasing the supply of affordable housing makes no more sense than raising property taxes to promote affordable housing. Builders are the people who take the risks to actually build something. They have to make a profit in order to stay in business. Their continued success means that the next house can get built. Set asides–requiring them to restrict the income they can make from a certain percentage of new housing units–is a disincentive to building anything. At the same time they are being hamstrung in their ability to earn income from what they have built, their costs and taxes continue to rise. This is no way to encourage more home building.

Rent Control. Rent controls have been proven to limit the supply of new housing stock. Sure, if you are lucky enough to score a rent controlled unit, you are happy. But squeezing landlords, who are risking their investments and time to provide rental housing, does not encourage investment in more rental units. The overall effect is to stagnate the supply of habitable units as demand increases. Cities that have frozen or slowed rents do not freeze or slow the taxes and underlying costs that erode a landlord’s ability to keep her rental units in good condition. Legislation that ties a landlord’s hands in how they conduct their business–by prohibiting them from ensuring that prospective tenants will not be trouble, or requiring them to house for free deadbeat tenants for prescribed periods of time–do not encourage anyone to take on what is already a difficult and risky way to earn a living.

Realtors Are The Answer. Realtors can be taxed at higher rates and there will be no adverse consequences for the housing and rental markets.

Consider how they make their money. They earn commissions, usually around 6%, when a property for which they have the listing is purchased. They also make money on the other side of the transaction if they are representing the buyer. For a property that sells for $500,000, the realtors in the deal split about $30,000. They could make this amount of money in a few days, as frequently happens in tight markets like we see in Jefferson County.

Realtors earn this hefty amount of money without risking any of their own. They did not invest in that house. They did not fix the septic system. They did not pay taxes and maintain the landscaping. But they may reap a profit equal to what the homeowner spent to put on a new roof.

As real estate prices increase, realtors are not working harder to earn those higher commissions. They pretty much do the same thing for a $500,000 house that they do on a $250,000 house. Additionally, much of the leg work realtors did years ago is being done for them by Zillow, Redfin and similar websites. Taking photographs that make a room look larger than it is in reality may be a new skill for realtors, but it hardly justifies the huge commissions they earn when so much of the screening of a property is done for them remotely on the Internet.

Despite these new technologies, realtor commissions have not appreciably budged. Technology has benefitted consumers in just about every other industry by increasing efficiencies. Why haven’t real estate commissions dropped? We will discuss the anti-competitive legacy and impacts of realtors and their trade associations in keeping transaction costs high and contributing to housing unaffordability.

Currently, realtors in Washington pay a 1.5% tax on their commissions. That is higher than realtors pay in other states. But Washington, particularly western Washington, also has faster rising and generally higher real estate prices and a greater shortage of affordable housing than many other states. The amount of tax realtors pay on their commission is, unfairly, far, far less than the seller pays in real estate excise tax.

That 1.5% tax on a $30,000 commission on a half million dollar house comes to only $450. The realtors in the deal walk away with $29,550

Doubling that tax to $900 would be a drop in the bucket.  Realtors would still take the listing. They would still take their photos for Zillow. They would still walk prospective buyers through the house and hand out their cards. The would still be telling the seller to spend more money to make the house more presentable.

And it would make no difference to the supply of housing. I submit that the real estate brokerage tax could be raised to 10% and still make no difference on the availability and price of housing. For the chance at netting $27,000, realtors will take that $500,000 listing. They still could make with a couple days’ work what is a year’s salary for many people in this county.

Next: Realtors’ History of Anticompetitive Practices Contributes to Housing Unaffordability.