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HomeMy WebLinkAbout2018-07-27-REPSC-min Residential Exemption Policy Study Committee (Ad hoc) Friday, July 27, 2018 Hudson Room, Cary Memorial Building Minutes Attendance Mark Andersen (chair), Vicki Blier, Sara Bothwell Allen (acting secretary), Howard Cloth, Katie Cutler, Thomas Whelan, John Zhao, Joe Pato (Selectmen liaison). Invited guests (for Broker Round Table): Robert Cohen, Diamond Hayes, Beth Sager. Resident observers: Keith F Whitmore, Joanne Brady, Ken Brady, Ethan Kiczek. Mr. Andersen called the meeting to order at 8:02AM. Ms Bothwell Allen agreed to serve as acting secretary Public Comment Period none Mr Andersen explained meeting process to guests and observers. The minutes for July 20, 2018 meeting were approved with minor edits. Broker Round Table Ms Cutler introduced the charge of this committee and reason for inviting brokers to our meeting for a round table conversation today, and that we would be asking questions broken into several topical sections, beginning with potential impacts of RE implementation on sellers. All three brokers present cover the entire Lexington market. Seller factors: Ms. Cutler asked for the 3-5 top reasons people are selling their homes—Ms Hayes responded that downsizing is the primary reason, in the past 5-7years. She further illustrated that age 45 is the average age of Lexington buyers, and 25 years later, after kids are grown, living space needs have decreased, so they consider selling. At this point the cost of expenses living in Lexington (including tax bill)is a pretty major consideration. Mr. Cohen agreed, saying his clients who were residents of 40 years with valuable property moved to rentals in Burlington. Ms Sager pointed out that elderly sellers receive weekly offers from builders who say there's no value to an old house, only to land, and this may influence seller perceptions and behaviors. Mr. Cohen said builders make it sound very easy to sell to them just leave everything as is, whereas a realtor will suggest cleaning up/painting before selling on market, which may feel overwhelming. Are taxes a consistent factor in the decision to sell? Mr. Cohen said people selling/buying to trade-up housing don't care about taxes. But for sellers who have lived in their homes 40years taxes are a primary issue. Ms Sager—doesn't know how big of a population the tax issue is primary issue, as other factors such as upkeep, stairs, etc. are frequent reasons to sell as well. Mr. Cohen says people who come to him have already decided to sell, rather than trying to figure out how to stay. Ms Hayes—taxes isn't the first issue, living arrangement ise.g. after a big snowstorm, yard care/upkeep and storm damage becomes too much work. Ms Sager—for people who have issue with the overall financial picture, taxes factor into whether they can afford to maintain their houses. For those on fixed income, taxes get paid first, so then they don't have money to paint/fix, and things start to fall apart. As things fall apart, that leads to tear downs-5- 6 years of deferred maintenance adds up. Mr Cohen mentioned historical building limitations on renovations/retrofitting, and others may leave because they cannot afford to do the retrofitting to age in place. Ms Sager--Downsizing square footages doesn't necessarily mean downsizing investment in real estate. Mr. Andersen mentioned that household maintenance can be very expensive and asked whether a $3000/year tax break would be enough to make a difference to those home owners. Mr. Cohen thought a tax break of that size would not likely be enough to change decisions. Most residents here support the higher taxes. The existing tax deferral program is not taken advantage of by most who would qualify. Mr. Cohen and Ms Sager say most residents do not know about the tax deferral program. Rental market: Ms Hayes distributed copies of her study on absentee ownership and the rental market. Her data came from MLS—access to realtors. Ms Cutler asked why people are absentee owners. Ms Hayes replied that the rental market is very strong in Lexington, even some high-end houses are being purchased for purpose of renting out. Ms Blier asked if it was an investment vehicle for moving money internationally. Ms Hayes said yes, and that it's a stronger investment than the stock market. Ms Cutler asked what the effect of higher taxes would be—all realtors agreed that extra cost would be passed on to renters. Ms Sager works with three rentals now where the owners live elsewhere in town. The rental houses were the owners' "starter houses." Mr. Andersen asked whether families with children attending the schools are filling these rental houses. Mr. Cohen says, not always, he has an empty nester rental client. The desirability of living in Lexington, aside from the value of the public schools, drives desire to live here. Ms Hayes added that $3-5000/month is the typical SFH rental rate now, though some rent for much higher. Snow birds: Mr. Cohen is on the Board at Brookhaven. He mentioned there are many snow birds at Brookhaven. Most of them claim Lexington as their primary residence. Many Lexington residents have second homes either for summer (e.g. Cape) or winter(e.g FL). Inheritance: Ms Sager said not many people are holding onto houses for their kids' potential future use. Mr. Cohen has worked three inheritance cases this year—all were sold. Ms Hayes, said on her street, three cases of people inheriting have stayed as residents. Ms Sager said there are many people who grew up here but cannot afford to live here but make arrangements with their parents regarding their house. Buyer's market: Ms Cutler asked how often property tax comes up (or other top factors) with potential buyers? Mr. Cohen said the schools are the top factor for buyers. Most people do not ask about the taxes, on $1.2million+ houses. Ms Sager said people are often surprised about the high taxes. Under $lmillion houses, buyers are motivated only for the schools and will do whatever it takes to make it work, but for $1.2million to $2million range houses, people are surprised about taxes. Ms Hayes discussed how a RE would have the effect of allowing people in homes valued below the median owner-occupied home valuation to afford slightly larger mortgages and houses. Among Ms Hayes' clients—about 80% ask about taxes. Mr. Cohen pointed out that for the kinds of homes that would get the tax relief of RE, there are 10-12 potential buyers for that house, many providing all cash offers. Mr. Andersen asked if buyers are willing to pay more overall, and how much—all the realtors said yes. What percentage of buyers are paying cash versus getting a mortgage? Mr. Cohen says many buyers are paying cash to look good to sellers, but the day after closing, they get a mortgage to pull the cash out again. Mr. Cohen illustrated ways people who do need mortgages manage to pay cash—it's not always their own money. $1.2mil to $1.5mil buyers, with $300k annual salaries, are stretching their finances to live in homes at this price-point. Ms Sager said there is the subset of the market of young families moving from Boston/Cambridge, selling townhouse there, who do question the tax rate because they had lower tax rates there. Ms Hayes said 80% buyers don't have mortgage. About 10% stay with cash after purchase, the rest get mortgages after sale. Ms Cutler asked if some people go elsewhere because of taxes. Mr. Cohen stated people whose primary interest is schools chase houses in Lexington, Winchester, Concord for rural/suburban environments and Newton, Brookline, and Belmont for more urban preference, and that all of those towns have high taxes. Ms Sager added that some buyers consider the alternative choice of staying in a town with lower tax rates and paying private school tuition, but that is now often more expensive than Lexington property taxes. So high property taxes are not a buying deterrent for schools-motivated buyers. Ms Hayes added that selling houses under $lmil is difficult in Lexington because of perception (that all good homes here now cost at least $lmil), and that competition is fierce. Bidding wars are ongoing in the $1.5-$1.7million, built after 1990 portion of the market. Developers: Mr. Andersen asked, if RE was implemented, causing the marginal tax rate to be changed, would a developer's plans be affected by an increased tax rate. All said no, b/c developer pays taxes on the knocked down house's assessed value, not the value of the newly built house. The buyer is the one who pays the new, higher tax rate. Mr. Whelan asked about the new federal tax law impact—limit to $10k on deduction—does this affect buyers? Mr. Cohen said no b/c 90% of buyers in town are over the limit already. Ms Blier reflected that the brokers seemed to be saying that RE reductions at the lower end of house values wouldn't be big enough to make people stay, and the increases at the higher end house values would not be big enough to deter people from buying. All three brokers agreed, unless maybe if it was a more dramatic break at the lower end, that might have an effect. Mr. Andersen asked if they would answer differently in a recession. Mr. Cohen said no, that wasn't the case in the last couple recessions. In the 2001 market crash, Lexington really wasn't affected. In 2008, the impact in Lexington was minimal and was fast to resume growth afterwards. Ms Sager and Ms Hayes agreed. In 2008 recession, Ms Hayes says, the top of market($1.3mil range)reduced prices a little to be able to sell, but the market was otherwise unaffected. Mr. Whitmore asked about whether remediation (lead, asbestos, etc.) costs are ever a factor in sales—all brokers said no, those are small costs on the scale of the overall transaction. Mr. Cohen said Lexington has about 80-100 knock downs per year, and house size is increasing but family sizes are decreasing. Ms. Sager said the same overall situation is happening now in competing towns, such as Arlington and Bedford. Mr. Andersen thanked the three brokers for the high quality of the data they were sharing and their generosity in sharing with us. Invited guests Mr. Cohen, Ms Hayes, and Ms Sager departed after this round table portion of the meeting. After the brokers left, Ms Cutler asked if anyone was surprised by any of their input. Mr. Cloth mentioned surprise at how much agreement there was among all three brokers. Mr. Zhao mentioned surprise that at the lower end of the market, the tax increase/decrease would not have much effect. Mr. Cloth responded that seniors may feel the perception/recognition of tax relief may matter more to seniors than need of a real financial impact. Mr. Andersen remarked that the parameters of who needs financial help versus who would be helped by RE(blunter tool—but graduated benefit) or Means-Tested (very targeted—but hard cut-off) is challenging to capture, such as seniors in town who might be just above a MT cut-off line and not benefit. Mr. Pato summarized that these approaches would not be a silver bullet to keep people from leaving. The realtors characterized those who have sold homes, but are not able to characterize those who have not yet decided to leave. Ms Blier mentioned that implementing these policy tools would be a drastic measure to take just to make people feel better. Economist roundtable planning The Committee agreed that today's format for the broker round-table was very productive, and a good model to replicate for the economist session—again with a goal of three guests. Moving forward, we will need a date and to generate set of questions. Mr Pato asked for a broadened focus from economic policy to includes effects of housing change, and suggested Peter Enridge would be a good addition to the two economists. Ms Blier will work on confirming invited guests and setting a date for this session. Means Tested Decisions Mr. Andersen distributed a handout covering work to be done for our Means-Tested Policy examination. Mr. Andersen reported he and Ms Blier met with John Bartenstein to discuss roles of policy determination vs text writing. Mr. Bartenstein has volunteered to write the language for Lexington's MT Policy draft, and this Committee is responsible for making the policy decisions. Mr. Pato informed us that a sub-quorum of this committee cannot meet to create a deliverable to this committee, that would require a subcommittee. Instead, we will ask for volunteers to work in sub-quorum to think deeply about the policy choices of a MT exemption that can guide future full committee deliberation on the policy choices. Resident survey proposal Mr. Andersen shared that he and Ms Bothwell Allen have given an overhaul to the draft survey—the new structure focuses on affordability, migration, services, as well as tax effect on behavior. Mr. Andersen shared the services portion with Melissa Battite, of the Recreation Department, about the recreation questions. Ms Bothwell Allen added that 20/20 Vision Committee is meeting this morning and may add questions. Mr. Andersen emphasized that motiving people to complete the survey is a primary issue—both motivating them to open the survey and also not asking a question that will cause them to quit before completing. The committee collectively discussed revisions of many survey questions. Committee report draft and self-assessment (Ms Blier)—tabled to next meeting. Next meeting August 17, 8:OOAM Meeting adjourned at 9:42am