Saltzman pushes for construction tax to boost affordable housing
Commissioner Dan Saltzman will ask the City Council to enact a 1 percent tax on new residential and commercial construction to help fund more affordable housing.
The council is expected to consider the construction excise tax in June. It is allowed under the package of affordable housing bills approved by the 2016 Legislature.
The lack of affordable housing is the greatest crisis facing our city right now. This proposed tax on new development will provide us with a dedicated funding source for the preservation and construction of much needed affordable housing, Saltzman said when he announced the proposal Tuesday, May 24.
Commissioner Saltzman is inviting public comment on his proposal.
The new law allows cities to enact such taxes up to a maximum of 1 percent of the total permit valuation of residential and commercial development. Although home builders normally oppose any fees that increase construction costs, they supported the package as a compromise to increase the supply of affordable housing.
"We supported the legislation that came out of Salem and understand this is a next step in the process for Portland. We applaud Commissioner Saltzman's efforts to ensure that funds are earmarked for housing development. We look forward to working with the city on this issue and the opportunity to use this discussion to address other important policy-related matters that impact the cost of housing and housing affordability," says Paul Grove, associate director of government relations for the Home Builders Association of Metropolitan Portland.
Saltzman estimates the residential development tax will raise approximately $5.4 million per year, while the commercial development tax will raise about $2.6 million per year.
Portlands rising rents coupled with extremely low vacancy rates, have made affordable housing options scarce for low- and middle-income Portlanders. This proposed tax on new development will provide more affordable housing and prevent more families from being priced out of Portland, said Saltzman, who is in charge of the Portland Housing Bureau.
A chart prepared by the housing bureau estimates the tax would add $3,636 to the cost of a typical 3,844-square-foot single-family home. That is more than the system development charge assessed by the Water Bureau but less than the $8,523 Bureau of Environmental Services SDC or the $8,523 Portland Parks & Recreation SDC.
The chart also estimates the tax would add $114,032 to the cost of a typical 122,619 square foot multifamily housing project. That's considerably more than the $21,557 Portland Bureau of Transportation SDC but less than the $453,479 BES SCD or $649.682 PP&R SDC.
Under the new law, 15 percent of the money raised by the residential development tax will go to the state for affordable housing, and 35 percent will go to local affordable housing construction or preservation projects. The remaining 50 percent is intended to help fund incentives for residential developers to include affordable units in their projects. The 2016 affordable housing bills lifted the local ban on so-called inclusionary zoning," but requires local governments to help offset the lower revenues they generate.
On the commercial side, the law dedicates 50 percent of the tax revenues to affordable housing projects. It allows the remaining 50 percent to be spent for other purposes, but Saltzman's proposal calls for it to be dedicated to affordable housing, too.
Saltzman's proposal is just the most recent step the council will consider to increase the supply of affordable housing since declaring a housing state of emergency last October. Since then, the council has increased the amount of urban renewal funds dedicated to affordable housing from 30 percent to 45 percent. It has also included an $20 million for affordable housing and homeless service in the budget it approved for the next fiscal year last week. That money will be matched by $10 million from Multnomah County, and the entire $30 million will be spent by the A Home for Everyone consortium that also includes Gresham and Home Forward, formerly known as the Portland Housing Authority.
As housing commissioner my primary goal has been to increase the supply of affordable housing. The key to achieving this has been to increase and diversify our funding mechanisms for affordable housing. This tax on new development would provide us with a new, much needed revenue stream, said Saltzman.