A candidate for Seattle mayor says the city should consider taxing nonresident homebuyers and a City Council member has looked into it. But city lawyers say it would be illegal and the King County assessor says it could stoke discrimination.

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As Seattle leaders debate whether to tax overseas buyers or vacant homes to cool a hot housing market, the City Attorney’s Office has declared both proposals illegal.

And the King County assessor has denounced the entire approach, saying such taxes are unneeded and could stoke anti-Asian sentiments.

British Columbia began taxing foreign buyers and empty investment properties in pricey Vancouver last year, and Seattle leaders have quietly been considering similar plans. Mayoral finalist Cary Moon has made them a signature issue.

Concerned about home prices here, City Councilmember Lisa Herbold recently asked City Attorney Pete Holmes if taxes on foreign investors and vacant properties would be possible under local laws. The answer was no.

Herbold then turned to King County Assessor John Wilson, asking in a June letter for help unmasking wealthy buyers who hide their identities behind shell companies.

But Wilson last week strongly criticized her request, saying it could stigmatize people from China, who make up a high share of overseas buyers in Seattle.

In a written response to Herbold last week, the assessor said he would refuse to collect the buyer-identity data the council member was asking for.

“I would not support any policy response that could lead to racial bias or anything that smacks of the Chinese Exclusion laws from two centuries ago,” Wilson said.

The assessor added: “The luxury-home market is not driving our affordability crisis. It is simple supply and demand of housing priced for working people.”

Herbold says Wilson misunderstood her request, saying her goal was not to identify buyers by their nationalities. But with the assessor not on board, she now instead plans to seek help from her council colleagues.

The council member says she will ask for a city review of vacant homes, hoping to determine just how many investors are parking their money and letting them sit empty.

The debate could resonate in the race for Seattle mayor, which pits urbanist Moon against former U.S. Attorney Jenny Durkan.

In her first 100 days as mayor, Moon would “engage staff and experts in analyzing the legal viability and efficacy of a range of immediate actions,” including taxing corporate and nonresident owners and unoccupied housing, she has said.

Kimberly Mills, a spokeswoman for Holmes, declined to comment Friday about advice given to Herbold regarding potential taxes, citing attorney-client privilege.

A terse exchange

When Herbold wrote to Wilson in June, she cited reports in The Seattle Times and New York Times about foreign buyers and about allegations of money laundering in cash transactions. The reports keyed in on buyers from China.

“Using luxury homes as non-residential investment vehicles has artificial inflationary effects on the Seattle housing market,” Herbold wrote, noting many such purchases are made with limited-liability companies (LLCs) that conceal the names of the buyers.

Noting the legal barriers to taxing speculators, she suggested Wilson could at least require more information to be disclosed about the people buying homes with LLCs.

Stressing her awareness of the “current political climate” and past discrimination against immigrants from China, Herbold asked about a system allowing disclosure of foreign buyers in a manner that wouldn’t “foment racial bias or resentment.”

The council member said she hoped the information could be made available to the public “in a way that is facially neutral about the national origin” of the buyers.

Wilson nonetheless said he was dumbfounded by Herbold’s request.

“It looked like what she wanted us to create was a racially or nationally stratified database of purchasers,” he said in an interview. “That just frankly scares the hell out of me.”

Wilson said he didn’t believe Herbold was motivated by racism. But he warned about where a “slippery slope” from any database or list of foreign buyers could lead.

“I don’t want to be a party to anything that even vaguely smacks of us trying to create some kind of racially stratified list. I am not going to do it,” he said, describing the fear as personal for him because he and his wife adopted two daughters from Korea.

The assessor called worries about foreign buyers a distraction, saying he hasn’t seen evidence that sales to nonresidents are having a significant impact on prices.

For instance, his office has seen no dramatic increase in cash sales, he said.

Wilson described taxes based on nationality as un-American and said they could undermine Seattle’s reputation as a global city welcoming foreign business.

Herbold plans to ask her council colleagues to launch a study of vacant homes in Seattle — perhaps modeled after a similar analysis in Vancouver — with a focus on apartments in new luxury high-rises.

“The results of that study will help us decide if there is a problem we need to solve,” she said.

Dorothy Wong, executive director of Chinese Information and Service Center, a Seattle-based nonprofit, said she believes anxieties about wealthy investors driving up housing costs are valid.

But Wong said she shares concerns about an emphasis on Chinese buyers, particularly “in this political climate.” She worries about some locals adopting an attitude of “The Chinese are taking away our homes.”

Wong said she hopes officials look at investment purchases rather than overseas buyers in particular, and added foreign buyers might benefit from more education on what the community ramifications can be when they purchase their pieces of the American dream.

Limited success in Vancouver

There are questions about whether taxes targeting foreign buyers would even help slow Seattle’s runaway real-estate market. They haven’t yet in Vancouver.

B.C. enacted a 15 percent tax on foreign buyers a year ago and later began taxing owners of vacant properties 1 percent of the home’s value.

The share of metro Vancouver homes with foreign buyers, while tricky to determine, is now estimated at 6 percent, down from 16 percent, according to The Vancouver Sun. And the tax generated about $81 million U.S. in revenue in its first seven months.

But there are worries about whether some buyers are obscuring their identities, and home prices are still soaring, after an initial dip when the tax took effect.

Prices for existing homes surged 11 percent in the five months ending in July, while prices for new homes are rising at their fastest pace since 1990.

The typical single-family detached house in Greater Vancouver now costs $1.3 million U.S.

Jill Oudil, president of the Real Estate Board of Greater Vancouver — a Realtors’ association — said the group polled local brokers and found the tax hasn’t done much to help with the city’s affordability challenges.

“We haven’t seen a lot of change due to the tax,” Oudil said. “Supply and demand is ultimately what’s dictating our multiple offers and our rising prices. It’s not the foreign buyers.”

In Seattle, housing costs have nearly doubled in the past five years, and the typical house now costs $750,000.

There’s no hard data on foreign investors here, but surveys have found the region to be among the top U.S. spots for foreign buyers, particularly those from China.

Foreign buyers represent a small portion of sales in Seattle; they have a bigger presence in ritzier places like West Bellevue.

Impact on mayoral race

Moon has said “speculators and nonresident profiteers are driving up prices and exacerbating Seattle’s housing crisis.” In her plan for her first 100 days, she wrote, “We don’t know the real depth or dynamic of this problem because no one wants to look.”

The candidate has been careful to use the term “nonresident owners,” rather than “foreign buyers.” However, an April piece Moon co-wrote for The Stranger did discuss Chinese buyers shifting their focus away from Vancouver and toward Seattle.

 

“It’s not … a question of Chinese investors operating outside the legal framework,” they wrote. “These purchasers aren’t breaking any laws. The problem is the reckless exploitation of a local housing market.”

In a statement Friday, Moon said her approach as mayor “would be first to analyze speculation activities — not actors — in our escalating real-estate market.”

Moon added, “Then I would propose legally viable taxes to curb the profiteering exacerbating our housing affordability crisis.” She didn’t address the advice Herbold says she received from Holmes declaring such taxes illegal.

“I applaud Councilmember Herbold’s initiative to better understand speculation activities, share Assessor Wilson’s concerns about efforts to identify investors by national origin and believe starting this work with a focus on the identity of purchasers puts us on the wrong track,” Moon said.

Durkan spokeswoman Stephanie Formas issued a statement Saturday echoing Wilson.

“Jenny believes strongly that taxes, penalties and bans based on nationality are wrong and illegal,” Formas said.

“Changing the name to ‘non-resident’ does not change the fact that this started as anti-Chinese buyer tax. Seattle has a dark history of discrimination against people of Asian descent, such as the Chinese Exclusion laws and the mass internment of Japanese. We cannot go there — particularly in the age of (President Donald) Trump.”