1% Construction Tax May Shape Developing Portland

    The Portland City Council on Wednesday approved a 1% construction excise tax that officials said will help fund the city’s affordable housing projects. The state authorized Oregon cities and counties to establish the tax earlier this year, repealing a 17-year ban on inclusionary housing laws.
    Portland will start collecting the tax August 1 on both commercial and residential real estate projects, with the tax proceeds earmarked for the city’s Inclusionary Housing Fund (IHF) and the Oregon Department of Housing and Community Services (OHCS). Tax revenue from residential construction will be distributed between the IHF (85%) and OHCS (15%), while 100% of the tax proceeds from commercial projects will be paid into the IHF.
    Commissioner Dan Saltzman told Oregon Public Broadcasting that the tax should raise an estimated $8 million per year. The extra money will help build qualifying projects targeting those who earn 80% or less of the median family income for Portland as determined by the U.S. Department of Housing and Urban Development.
    Portland is a hot real estate market right now, with high prices driven by low inventory and high demand. So what does this new tax mean for potential homebuyers?
    “Any additional costs for construction … will be passed on to the consumer via higher prices, which, in turn, pushes the prices of homes in Portland further out of the reach of many,” said Nick Krautter, Portland Realtor and publisher of area housing market data.
    Affordable housing projects will most likely be limited to the east county area, Krautter said, due to the high prices and limited availability of land in the rest of Portland.
    As to how it will affect the pace of current home construction, Krautter said nothing should change in the short term. “With current interest rates, out-of-state buyers and lack of inventory, new construction of homes will continue at a good pace.  If any of these three factors change, (the excise tax) could cause a new-construction slowdown.”

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