D.C. Mayor Muriel Bowser (D) delivers her State of the District address. (Bill O’Leary/The Washington Post)

D.C. Mayor Muriel E. Bowser (D) proposed raising taxes on commercial property transactions to fund more affordable housing during the annual State of the District address Monday evening.

As her second term gets underway, Bowser emphasized the need for more subsidized housing in a city where real estate values have soared, pricing out many longtime residents.

She wants to increase the city’s annual contribution to the Housing Production Trust Fund, which provides grants and loans to developers to build affordable housing, from $100 million to $130 million.

The mayor also wants to add $5 million to a separate $10 million fund to rehabilitate and preserve existing subsidized housing and to create a $20 million fund for “workforce housing” for teachers, police, firefighters, janitors and other middle-class residents.

“Affordable housing isn’t just a problem for our most vulnerable residents, though — it affects our entire community,” said Bowser, who was repeatedly interrupted by housing activists chanting “People over profits!” and “This is our home!” until they were escorted out by police.

To pay for the new spending, Bowser told The Washington Post in an interview before her speech that she wants the D.C. Council to increase the deed recordation and transfer taxes from 1.45 percent to 2.5 percent on commercial properties worth more than $2 million. Officials estimate that would raise $79 million next year. The taxes are imposed when property is sold or transferred and do not apply to residential real estate.

Bowser’s address, before a crowd of several hundred at the University of the District of Columbia, came at a precarious time for city finances.

The District’s coffers have overflowed in the past few years with new tax revenue from a sustained real estate boom and steady population growth. That has enabled the city to fund big-dollar contracts and capital projects, including upgrades to recreation centers, school modernizations and new libraries.

But the District will see almost no revenue growth this fiscal year because of a cooling economy and the 35-day partial government shutdown that cost the city $47 million in lost revenue, according to estimates from the chief financial officer.

“We are resilient but we are not financially tsunami-proof,” Bowser said. “And as we continue through budget season, we must resist the temptation to write checks now that we cannot cash in recessionary times.”

The mayor has cautioned against new programs, but she suggested several areas of investment in her speech.

She announced that the city would permanently eliminate the $1 fare on the popular D.C. Circulator bus system, after experimenting with free rides in February and March. “For working people, it adds up,” Bowser said, noting that she has been stopped in the store checkout line and at dinners by people who gushed about the free bus rides. The free rides cost the city about $250,000 a month, officials said.

Bowser wants to make permanent a one-time $1,000 tax credit she proposed last year to offset the cost of child care and wants to expand the Schedule H tax credit to more low- and moderate-income renters and owners.

The budget she plans to submit to the D.C. Council on Wednesday will also seek an increase in the immigrant legal services grant program from $900,000 to $2.5 million and elimination of the sales tax on diapers. And she proposed spending $122 million for a new K Street transit project, which she told The Post would involve a dedicated bus lane.

But she repeated that housing is the city’s top issue.

About two dozen demonstrators who rallied outside UDC before the speech said Bowser’s efforts were inadequate to halt the displacement of low-income District residents.

“The mayor has done mostly nothing to stop the displacement of low-income residents in D.C.,” said Parisa Norouzi, executive director of Empower DC. “The lowest-income people are being ignored.”

Carrying signs that read “People over $,” “Keep DC for Me” and “Black Homes Matter,” they marched in circles and chanted as top-ranking D.C. government officials walked past them and into the auditorium.

Advocates have argued that the Housing Production Trust Fund needs to increase to at least $200 million.

When she was sworn in for a second term in January, Bowser set an ambitious goal to build 36,000 units by 2025. She provided few details on how to get there.

In an interview, the mayor acknowledged her proposed increases to the housing programs are not enough to hit her targets. She hasn’t sought sweeping changes, such as trying to create more dense development by lobbying Congress to repeal height restrictions in certain parts of the District.

Ed Lazere, executive director of the D.C. Fiscal Policy Institute, said the new investments show that Bowser is taking the affordable housing crisis seriously.

“My initial reaction is that this is a great sign that the mayor recognizes that we need to move to the next level in affordable housing, and that it’s worth raising revenue to achieve this important goal,” Lazere said.

Lazere said he would need to see additional details of the mayor’s forthcoming budget, such as funding for homeless services, before judging the adequacy of Bowser’s housing strategy. He also questioned whether the $20 million pledged to workforce housing would be better spent on the city’s neediest residents.

But Bowser said a housing strategy needs to focus on the middle class, too.

“Across our income spectrums, people are stressed with housing costs, and we want to be able to continue to attract government workers,” Bowser told The Post, citing the need to recruit teachers and police officers who can afford to live in the city.

Bowser also presented an optimistic picture for the city’s schools.

“Our pre-K program is attracting families to our city and a much-improved system of public schools is keeping them here,” said Bowser, who is seeking $4.6 million to provide every third-, sixth- and ninth-grader with a laptop or tablet, and an increase in mental health counselors in schools.

Luz Lazo contributed to this report.