One more reason ADUs won’t solve the housing shortage
Affordable Housing Is a Red Herring
Housing is a hot topic in Portsmouth. Our City Council cries, “We must have affordable housing!” Then they allow developers to build still more expensive apartments to rent and condos to sell under the guise of “affordable housing.”
According to real estate experts, the shortage of supply is forcing up prices on existing homes and inflation’s impact on construction costs is causing an upward spiral in the expense of new homes.
Examine a frequently overlooked factor that is affecting the demand side: high taxes in neighboring states. This dynamic gives you a clue regarding why the demand for housing seems insatiable.
The IRS is watching you!
A new study from the Pioneer Institute, an independent, nonpartisan, privately funded research organization in Boston, analyzed just released information from the Internal Revenue Service that compares a taxpayer’s filing address for the current and previous year.
The Pioneer study found that Massachusetts had a net loss of over 25,000 tax filers in 2021 — over half fled to New Hampshire and Florida, both states with no income tax.
Florida is a great place to live so it isn’t surprising that many families decided to relocate to the Sunshine State. But, as the table shows, when you compare 2021 results for the Granite State to the previous year, the number moving north is up over 50%.
Net Loss of Massachusetts Tax Filers
2020 and 2021
| Year | To New Hampshire | To Florida |
| 2020 | 4,306 | 5,922 |
| 2021 | 6,527 | 6,199 |
| % Change | +51.6% | +4.7% |
Source: Pioneer Institute
When measured in dollars, the loss of adjusted gross income to Massachusetts rose from $2.5 billion in 2020 to $4.3 billion in 2021.
Over 67% of this dollar loss went to Florida and New Hampshire.
If the relationship of dollars/tax filers lost between Florida and New Hampshire remained the same, the additional dollar amount flowing here would have been just under $1.5 billion. These numbers tell us that recently more people are moving to New Hampshire than are heading to Florida.
Some of those dollars certainly landed in Portsmouth.
This is a substantial amount of money and certainly could have an impact on the demand for housing in New Hampshire.
And based on its proximity to Boston, it is reasonable to assume that Portsmouth could be a major target.
Could this trend continue? Yes, and taxes are the driving reason.
This may be just the beginning of the exodus from Massachusetts.
In addition to higher income and estate taxes, last fall Bay State voters passed the Fair Share Amendment, also known as the “millionaire’s tax.” This adds an additional 4% tax on top of $1 million of income. The proceeds from the sale of a family business are counted as income.
We have read that financial advisors are warning their high-income clients not to start businesses in the state and consider moving to a more friendly tax environment. Some are acting now, and others have to wait for leases to run out or other business-related obligations and commitments to expire.
Massachusetts = Taxachusetts
A survey released in March 2023 by the Massachusetts Society of CPAs revealed that 82% of the 270 CPAs surveyed said that their high-income clients (annual taxable income more than $1 million) had plans to leave Massachusetts in the next year – Florida and New Hampshire were their top choices.
Of the 5,500 high income taxpayers who use this group of CPAs, 100% of those responding pointed to tax policy as the main reason. Unless this changes, look for the inflow of dollars and families, and the associated impact on an already tight Portsmouth housing market to continue.
And this data just represents families leaving Massachusetts.
Residents in other high tax states like New York and Connecticut are also viewing New Hampshire’s absence of income tax as an attractive alternative.
ADUs are not the answer
Some on the Portsmouth City Council believe that they can solve the housing shortage by easing the regulations on Accessory Dwelling Units (ADUs) which would open the flood gates for more to be built. Think again.
These migrating families are at the top of the income ladder and want large homes and larger back yards. Adding more tiny homes is not going to make a bit of difference.
Photo Source: file photo, NHPR
