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Some argue demolition tax would prevent development of affordable housing in Lake Oswego

PMG FILE PHOTO  - The Lake Oswego City Council is set to approve a $15,000 demolition tax during the Dec. 3 meeting.City Council members voted 5-2 in favor of passing an ordinance that would enact a $15,000 demolition tax on homes in Lake Oswego during the Nov. 5 city council meeting, sparking mixed reactions and even some national attention.

The ordinance proposes a tax of $15,000 per dwelling unit that would apply to demolitions of single-family homes and duplexes, with a $5,000 discount for homes that are deconstructed.

If a home is deconstructed that means the building materials are reused and salvaged. This is an alternative to demolition, which would include recycling and landfill disposal.

The tax revenue would be allocated to the Parks Department with the goal of raising $400,000 annually for parks maintenance.

Revisions to the ordinance made at the Nov. 5 meeting also include a three-year sunset clause, meaning the city can examine the ordinance and decide whether or not to renew it in three years.

Some folks are dissatisfied with the tax proposal because they see it as a response to the recently passed House Bill 2001, which requires cities with more than 25,000 residents — or within Metro — to allow "middle housing" like duplexes, triplexes and other multi-unit, clustered housing options to be built on land zoned for single-family homes. Several council members said discussion about a demolition fee occurred prior to the passing of HB 2001.

Regardless of the timing, people like Roseann Johnson — assistant director of government affairs for the Home Builders Association of Metro Portland — say the tax will have a significant impact on affordable housing viability in Lake Oswego.

"The redevelopment costs associated with tearing down a home, and putting new additional housing there, do not need to see an additional $15,000, which will make it that much more difficult to bring to market and more difficult for pursuing homeowners or renters to attain that cost," Johnson said. "It's a financial barrier."

Johnson, speaking on behalf of the HBA, said the proposed ordinance would negatively impact all types of housing.

Though Mayor Kent Studebaker voted against the tax — he didn't want to add further taxes for residents — he doesn't think it will have an impact on affordable housing and said the tax was not intended to be anti-affordable housing.

The Wall Street Journal and Willamette Week both published stories on the passing of HB 2001 and mentioned that Lake Oswego's demolition tax was a direct response to the bill that aimed to end single-family zoning in most cities throughout the state and increase cheaper housing options.

"That's completely false. That's somebody making an assumption that hasn't paid attention to what was going on," said Studebaker, adding that there is an exemption to the ordinance if the proposed construction after demolition is affordable housing.

Under city code, affordable housing is defined as a multi-family development where rent and associated expenses like utilities and fees don't total more than 30% of the family's adjusted gross income level.

To qualify for affordable housing, income cannot exceed 80% of the area median income — which is just over $70,000 in Clackamas County — based on the number of family members, according to the Clackamas County Housing Authority's income limits.

"As part of the development permit process, the owner would be required to record a covenant on the property (ensuring) that it is used for the stated purpose of affordable housing as defined by the city's code," said Scot Siegel, the city's planning and building services director. "If the owner fails to maintain affordable rent/price levels for at least 10 years after development, as required by code, the City can place a lien on the property and collect the fees and charges owed, along with processing fees and interest."

Johnson said that the demolition tax exemption applies to the technical definition of affordable housing, but it leaves out housing for those who make slightly above the qualifying income. The code requirement for affordable housing would be hard to meet, according to Johnson.

"Instead of affordable housing, we talk about housing affordability because for any given area it's relative. For Lake Oswego, housing affordability means being able to do missing middle housing on lots that have demo worthy homes that are going to be taken down anyway," said Johnson, adding that regardless if a family qualifies for affordable housing, affordable homes are not common in Lake Oswego.

While Siegel said he knows tax and fee waivers will not offset the City's high land costs or entice developers to build below-market rate housing, "the incentives can be part of an overall strategy that leverages financial support from other sources, including nonprofit, regional, state and federal programs," he said.

Councilor Skip O'Neill said the proposed ordinance has no effect on HB 2001 because property costs in Lake Oswego are too expensive.

"If you're a guy or a gal and you're going to build in Lake Oswego, you aren't thinking affordability," O'Neill said. "There's no such thing of affordable housing when it attaches itself to new construction. We don't have the land where we could put up 200 homes because our land costs are just so high."

O'Neill added that he favors the funds going toward park maintenance because the parks are a selling point for interested homebuyers or renters, and as more families move into the city, the parks are used more and become increasingly under pressure.

"Unfortunately due to state law, if there is a blank piece of land and somebody wants to build on it, then the city charges them System Development Fees (SDCs) plus their permit fees, plus sewer, water hook-up and that tallies up to about $60,000," O'Neill said. "Unfortunately, we can't use any of the System and Development Fees we collect to maintain our parks."

For example, O'Neill said if there is a home that has the ability to split a lot and that home is torn down and the developer adds a second lot, the second lot will pay about $60,000 worth of fees to the City. On the other hand, the house that was taken down will have significantly lower fees because it doesn't have to pay SDCs or sewer and water hook-up.

O'Neill said due to when they were built, a good portion of homes that are torn down never had SDCs and therefore didn't pay into helping the parks. SDCs cannot be used for park maintenance, but they can be allocated to park expansion.

He said the tax makes fees more equitable between demolition sites and new lots.

But Johnson argues that it's unfair to have a small segment of a city population be forced to pay for the maintenance of all of the city's parks.

Rather, Johnson encouraged the city to charge a utility fee to all residents to fund parks maintenance or a levy.

Councilor Theresa Kohlhoff said she voted against the demolition tax because the revenue wouldn't support retention of the city's existing housing stock. She said the tax was originally proposed to counter a trend of affordable houses being torn down to put in unaffordable houses — luxury homes — but the measure approved by the council allocated all of the tax revenue to parks maintenance rather than home retention measures. Thus, Kohlhoff opposed it.

"As it is now I don't see it as having much impact on housing affordability here in LO given that what is being built is very high-end," said Kohlhoff, adding that if an affordable housing project was proposed, she understands that the tax might be a burden.

The tax proposal initially included an option for an $18,000 demolition tax, where the additional revenue could be used for a home weatherization program or other housing retention efforts.

In response to HB 2001, Mayor Studebaker said the City will file the required information and the planning commission will be looking at ways to increase affordable housing.

The proposed demolition tax will be brought before the council again Dec. 3 with revisions.

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