Tackling Delaware’s Housing Crisis
By: Jane Brady, Chair, A Better Delaware
Delaware is known as The First State, a source of pride for us. We think of our state as a good place to live, work and do business. But, behind that pride, there are eroding numbers.
Take, for instance, housing in Delaware. We don’t have enough, and what we do have is not affordable for a lot of us.
Delaware has a housing shortage. Some estimates put the number of housing units we need for those who are in need at over 20,000. The number may vary, but the shortage is not a new development. You would think there would be some urgency on the part of our state leadership to resolve the issue. After all, homelessness affects so many aspects of one’s life. The lack of stability is pervasive. Children, students, workers, mothers and fathers suffer the effects of the uncertainty lack of housing generates. Their physical and mental health suffers.
Recently, Kevin Smith, CEO of Habitat for Humanity of New Castle County reportedly stated, “Every delay in building affordable housing shows up in a child’s life sooner or later. We see it in instability, a lack of sleep, higher stress levels, and academic struggles.”
What are the policies that can change the dynamics of this situation? Well, to begin with, we can make it easier and less expensive to get permits to build. That reduces the time it takes to get to construction, and the costs, ultimately, of the housing that is constructed.
Red Tape Index recently posted a measure of the speed with which building permits are issued, and Delaware ranked 40th. Time is money for business, and the delays in getting projects approved, makes the cost of housing go up and reduces the number of projects that can begin construction. This delay includes not just big projects, but smaller ones and renovations and improvements to existing structures to make them livable and assure safe housing for tenants as well as homebuyers. Incredibly, while many leaders imply that only big business complains about the delays in permitting, in fact, over 70%, of landlords are smaller, individual investors.
When the costs of building rental units goes up, the rents go up. Renting becomes unaffordable for too many. Desperate ideas like rent control or “rent stability” which freezes rent where it is, are suggested, but studies continue to show such steps only exacerbate the problems. We need more units that are livable and affordable. That requires permits. Cut the red tape!
Additionally, our transfer tax is the highest in the nation – 4%. That is the tax on the sale price of property, a home or a condo. The tax adds thousands of dollars to the cost. The State increased the tax when Delaware was experiencing a revenue shortage and promised at the time that when times go better, it would be reduced. Well, we have been through ups and downs and still the tax is at 4%.
Just how does that affect the availability of housing? Usually, the buyer and seller each pay half as part of the settlement agreement, so it affects both the decision to buy and the decision to sell. The reality? The transfer tax on the sale of a house costing $384,079, not a mansion by any means, is $15,363!!!
A study by the Sage Policy Group, “The Economic and Fiscal Consequences of High Transfer Tax Rates found that high real estate transfer taxes trap families in their homes, reduce housing construction and slow commercial development. Further, the study found that the consequences hit low-income families the hardest, because it results in fewer apartments and higher rents. The study cites to the experience in Los Angeles, where, when the transfer tax was increased in an effort to bring in revenue, multifamily construction dropped 18%, the equivalent of about 2,000 units, and resulted in the loss of a number of construction jobs. Whether you are a young, first-time buyer, or an older person looking to downsize, the cost of the transfer tax factors in and discourages moving forward. Cut the transfer tax!
Let’s adopt policies that make housing affordable in Delaware and put children, families, seniors and all of us, in stable living situations.
Jane Brady serves as Chair of A Better Delaware. She previously served as Attorney General of Delaware and as a Judge of the Delaware Superior Court.