Connecticut’s red hot housing market ended 2020 on a high note.
In December alone, Greater Hartford home sales were up 51%, while home prices increased 16%, according to the Greater Hartford Association of Realtors.
For all of 2020, sales volume was up 13.7% (7,548 homes traded hands) and the median sales price rose 10.2%, to $270,000.
The housing market has been a surprising bright spot in what’s been a tough last year.
Up until 2020, Connecticut housing prices, along with the overall state economy, struggled for more than a decade to recover from the Great Recession, so to see a resurgence during one of the worst economic periods in recent memory was refreshing.
And homebuying has a ripple effect throughout the economy — as people purchase and make improvements to their new homes they enlist the help of builders, remodelers, tradesmen and others.
Will it last? I think the housing market will continue to be active for the first-half of 2021, but may cool off after that.
One thing that would slow the momentum is a proposed statewide tax on residential and commercial properties.
At a time when Gov. Ned Lamont has said he has no interest in raising taxes, this state legislative proposal sends the wrong message, and would hurt the economy.
Frankly, I don’t think the bill has much of a chance to pass. It was proposed by Senate President Pro Tem Martin Looney, a progressive Democrat from New Haven who has championed many tax increases during his nearly three-decade career in the legislature.
According to the CT Mirror, Looney’s proposal would add one mill — or $1 for every $1,000 of assessed value — on residential and commercial properties, but exempt the first $300,000 of assessed value. That means the higher tax would only kick in on houses or commercial buildings that have market values starting at around $430,000.
Some are calling it a mansion tax, but that’s a mischaracterization. It’s a tax that would impact many middle class households and small businesses.
Connecticut already has one of the highest property tax burdens in the country so adding to that pain in the middle of a recession makes little sense, especially as the state’s budget outlook keeps improving.
The proposal also fails to consider that many Connecticut homeowners already face the prospects of higher property taxes with the overall upswing in home values and the hit many municipal budgets have taken during the pandemic.
Looney’s intentions are noble — he wants to raise new revenue so lawmakers can send tens of millions of additional dollars to poorer cities and towns.
But this proposal only underscores the disconnect many lawmakers in Hartford have with how their proposals can negatively impact the economy.
For example, there is evidence, including from a 2018 study published in the Journal of Finance and Accountancy, that high property tax rates negatively impact home values — specifically the rate at which homes appreciate.
So, while the tax may raise new revenue short term, it could help stunt home-value growth long term, which would negatively impact property tax revenues that cities and towns rely on.
It also gives people — and companies — an added incentive to look at lower-cost destinations, at a time when Connecticut needs to be showcasing itself to New York City and Boston residents itching for a more suburban lifestyle.
During the Connecticut Business & Industry Association’s recent virtual economic summit, Lamont pointed out that the various tax increases that have been passed in the state over the last two decades — by Republicans and Democrats alike — have not helped solve Connecticut’s budget issues.
He’s right, and in aggregate they’ve only exacerbated our state’s problems by making Connecticut less competitive.
State lawmakers must begin to understand that raising taxes to solve short-term budget issues will only create longer-term problems.