Realtors say a proposed 25 percent increase in Pittsburgh's deed transfer tax — from 4 percent of a property's sale price to 5 percent — would stymie real estate investment and push potential home buyers to suburbs where the tax is lower.

City Council on Tuesday introduced legislation that would increase the transfer tax by 1 percentage point. A separate bill would authorize the Urban Redevelopment Authority to borrow $100 million to support efforts to increase the amount of affordable housing in the city. The tax increase is expected to generate $10 million a year that would be used to pay off the debt, according to Councilmen Ricky Burgess of North Point Breeze and R. Daniel Lavelle of the Hill District, co-sponsors of the legislation.

Burgess said the money would go into a trust fund that council created in December and be used to build housing and rehabilitate older homes for lower-income people. The URA would administer the fund, he added.

“There's a double benefit,” Burgess said. “We give people affordable houses, but we also, at the same time, reduce blight and improve the neighborhood.”

The current 4 percent transfer tax is divided among the city, which receives 2 percent, and Pittsburgh Public Schools and the state, which each receive 1 percent. It is typically split between the seller and buyer of a property.

Under a 25 percent increase, the tax would jump by $1,000 on a $100,000 sale.

Charlene Haislip, president of the Realtors Association of Metropolitan Pittsburgh, said the tax would likely be added to a buyer's closing costs and have a disproportionate impact on first-time home buyers and people in lower income brackets.

“All this is going to do is drive people who are most interested in trying to stay in the city outside of the city,” she said. “... It is going to turn away low- and moderate-income buyers, especially first-time buyers, whose biggest challenge is getting enough money for a down payment.”

Burgess and Lavelle argued that it would stimulate investment in poverty-stricken neighborhoods, improve dilapidated housing stock and increase home values.

“There's a good trade off for the individual who will be looking to purchase that home in Beltzhoover,” said Lavelle, a former real estate agent. “We can use these dollars to actually invest in that neighborhood, then 10 years from now, that same $50,000 house is now worth $100,000 or more. The equity they would have built up would absolutely be worth it.”

Council established an Affordable Housing Task Force in 2015 in response to soaring rental rates in neighborhoods such as East Liberty, where development is booming. Officials estimate 17,000 city residents need housing at below competitive market rates.

The task force recommended, among other things, that the city allocate $10 million each year to fund affordable housing. It also suggested an increase in the realty transfer tax to provide funding.

Mayor Bill Peduto, who is running for re-election this year, has said he would support the increase. Council is expected to schedule a first vote on the legislation for next week.

“We're supportive of the concept as well as the fund where the URA serves as the vehicle for bonding out revenue and then deploying it in the community,” said Kevin Acklin, Peduto's chief of staff, who also chairs the URA board of directors.

Burgess said the money would likely be used to provide loans and grants for down payments on home purchases and rehabbing dilapidated housing in poor neighborhoods.

“This burden is going to be disproportionately carried by high-end sales,” Burgess said. “We believe the end result of this stimulation will be increased home sales and increased property values across the city.”

Michelle Underwood of Brookline, who addressed council during a meeting Tuesday, urged members to reconsider the tax increase, noting that the city's transfer tax and earned income tax of 3 percent are higher than in surrounding communities.

“My daughter is looking for a house in the city right now,” Underwood said after the meeting. “She can buy that same house in Baldwin and not have that tax (increase), or that 3 percent earned income tax.”

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