Affordable housing has been a hot topic for several years, especially when money printing during the pandemic caused housing prices to soar. Some communities are looking for ways to bridge the gap so housing prices are more attainable, and Cape Cod is currently brainstorming a new tax on the rich to fund affordable housing.
The Falmouth Democratic Town Committee recently proposed a 2% real estate transfer fee on luxury home sales over $2 million. It comes to an additional $40,000 for $2 million home sales, with the fee going up for more expensive home transactions.
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Where Would The Money Go?
The proposal would primarily affect high-net-worth individuals in the area, since they are the ones who can afford homes worth more than $2 million. The Falmouth Democratic Town Committee said this initiative can "generate up to $56 million annually, including $7.8 million for Falmouth alone."
This proposal was modeled after the Cape & Islands Water Protection Fund, but it's natural for people to question where all of the money will go. The committee shared some of the places the extra tax revenue will go.
"Revenue supports local solutions – from mortgage assistance and home repairs to workforce housing and municipal projects," the committee proposed.
The proposal aims to help people who have been forgotten as cash pours into the region.
"If you believe Cape Cod should remain a place where working families, seniors, and young people can afford to live, now is the time to speak up," the committee wrote in their proposal.
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Cape Cod Is Not Alone
Cape Cod isn't the only region to propose an additional fee on expensive home transactions to help people who are struggling to buy homes. Los Angeles' "Mansion Tax" took effect on April 1, 2023. The Los Angeles Times reported that the initiative raised $215 million in its first year, citing the Los Angeles Housing Department.
Critics say that the extra tax on $5 million and $10 million properties has hurt the luxury market and negatively impacted multifamily developments and commercial properties.
Rhode Island also passed a similar mansion tax that targets luxury second homes and non-owner-occupied properties. The tax goes into effect on Jan. 1.
Connecticut also passed a mansion tax during the pandemic, with a tiered fee for $800,000, $2.5 million, and $4 million transactions. The tax became law in 2020, in a bid to make it more expensive for people to leave Connecticut.
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Will It Work?
Cape Cod is embarking on a new tax for $2 million home sales in a bid to make housing more affordable for everyday Cape Cod residents. However, this proposal may not produce the desired result based on other mansion taxes.
The 2024 DataHaven Community Wellbeing Survey found that 40% of Connecticut residents are just getting by or struggling financially. It's the highest figure recorded since DataHaven began tracking the issue more than a decade ago.
“The financial strain faced by so many Connecticut residents is a major concern, especially given the rising costs of housing, healthcare, and everyday essentials,” DataHaven Executive Director Mark Abraham said in a statement with the survey's results. “These trends highlight the urgent need for policy solutions that provide long-term economic stability for our communities.”
Home insecurity also worsened from 6% of adults in 2015 to 12% of adults in 2025, based on the survey's results. The mansion tax hasn't stopped a strong uptick in Connecticut residents feeling financially insecure. Results haven't been good in Los Angeles either.
Reduced luxury home transactions have cost schools and local governments $25 million in annual tax revenue, according to California YIMBY. Furthermore, the tax applies to commercial properties, which has discouraged developers from building multifamily properties that can provide more housing units. Los Angeles still remains one of the most unaffordable areas in the world, based on a May study by the Chapman University Center for Demographics and Policy. Only four cities ranked as more unaffordable than Los Angeles worldwide.
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