City considers implementing Construction Excise Tax
At the Newberg City Council meeting on Oct. 19, council members were reintroduced to a concept the city has been considering for some time: a construction excise tax on new projects that would fund affordable housing and encourage builders to pursue such affordable-to-the-consumer projects.
There was a brief introduction and some testimony, but the council will explore the issue in detail and likely come to a decision at its meeting on Nov. 2.
"In 2016, the Legislature allowed the charging of an excise tax to fund affordable housing," Newberg Mayor Rick Rogers said. "That allows municipalities to charge a fee on the permit valuation for construction, and it can be up to 1 percent. The use for those funds is to promote affordable housing in the community and there are a number of communities [that] have enacted it in our area, including Tigard."
The legislation spells out how the money may be spent, and the money collected from the up to 1 percent tax creates incentives for builders to build affordable housing. Some of the money brought in from the tax would potentially go to Oregon Housing Community Services, down payment assistance programs and other avenues that seek to create and promote affordable housing.
"The issue of affordable housing in Newberg is why this was brought up," Rogers said. "Originally, it was brought up by a citizens' group called Housing Newberg and from there it went to the (city's) affordable housing commission, [which] gave us their suggestion on it. That is what we will be looking at on Nov. 2."
The city can waive system development charges for up to two houses built in the community per year. This construction excise tax, Rogers explained, could generate more money for the fund and allow the city to waive more of those charges on certain projects. Still, there is vocal opposition from some builders, who lament the costs of adding such a tax to their commercial and residential projects.
"I have heard some of that negative feedback from some builders, who say that it just adds to the cost of the house, which will be passed on to the homeowner and made less affordable in the end," Rogers said. "The counter-argument to that is that money brought in by this will allow the city to provide incentives to developers to build more affordable properties in the first place. For example, we could also waive system development charges for those who build affordable housing, and that could be an incentive."
Rogers noted that the plan for implementing the tax may need a second reading before the council makes a decision on Nov. 16, but he thinks councilors will either approve it or not at the council meeting on Nov. 2. There is plenty of discussion on how best to do this and Rogers said he wants to hear from all the stakeholders involved to find out how to approach the issue.
"We've heard from homebuilder associations about putting this off until later because of the pandemic, along with other reservations and suggestions," Rogers said. "So, we'll see if we phase it in or embrace some other kind of proposal, but that is what we will be examining on Nov. 2.
"CET is but one tool of many to attack the issue of affordable housing. Unfortunately, there is no silver bullet or magic wand to say, 'if we just do this, all will be well.' What will hopefully alleviate some of the angst among builders is that we want to provide more incentives for them to embrace this approach."
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