PORTLAND TRIBUNE FILE PHOTO - Mayor Charlie Hales says he hopes his proposed $25,000 demoliltion tax will save 100 homes a year.The Portland City Council inched closer to adopting a tax intended to slow home demolitions and help fund affordable housing last week. The final vote on the proposal by Mayor Charlie Hales was postponed until this Wednesday, however, after it repeatedly was amended to address issues raised by the commissioners and witnesses.

As amended, the proposal would levy a $25,000 tax on all viable homes demolished and replaced with one or more new homes, but would exempt homes being purchased by the city to restore floodplains and affordable housing replacement projects.

Hales says he hopes the tax will prevent as many as 100 demolitions a year and raise $1 million or more annually for affordable housing.

“Growth is creating a lot of positive things in Portland, but I’m less happy with the demolition of great old houses that are being replaced by more expensive ones,” Hales said at the Nov. 25 hearing.

Although Hales introduced the proposal in response to neighborhood complaints about a “demolition epidemic,” not all those concerned were pleased with it. Several witnesses said the tax will only be passed on to homebuyers, further increasing the cost of housing. And a representative of United Neighborhoods for Reform argued for a moratorium on all residential demolitions, saying other issues, like mitigating hazardous materials during the demolition process, have yet to be resolved.

The council defeated an amendment by Commissioner Steve Novick that would have reduced the tax for less-expensive replacement houses. Hales said the council could revisit the idea in the future, however, as the tax plays itself out and other housing-related issues come before the council, such as recommendations by the task force he appointed to study residential infill problems.

The discussion came as the Portland housing market continues to heat up.

Average home sale prices in the metropolitan area rose to $353,400 in October, an increase of 6.1 percent over the previous year, according to the Regional Multiple Listing Service. The hottest areas included West Portland, where the average sale price was $427,000 in October, and Lake Oswego/West Linn, where it was $450,000.

“Activity has been higher in 2015 than in 2014 across the board,” according to the RMLS October Action Report. “Pending sales (30,453) are up 23.4 percent, closed sales (28,096) are up 20.6 percent, and new listings (36,966) are up 8.5 percent for the year thus far.”

Rents are rising even faster in Portland. The average of all rents in the city, including studios, one or more bedroom apartments, and single-family houses, was $1,674 in October, an increase of 11.2 percent over the previous year, according to the Zillow real estate and rental tracking service.

“It’s tough in Portland, which is still one of the nation’s hottest markets,” says Zillow chief economist, Svenja Gudell. “It ranks in the top five among the 35 largest metros for home value and rental appreciation — both are still rising at a double-digit pace,” she says.

The City Council blames such increases for creating a housing crisis in Portland. It declared a state of housing emergency in early October, in part to speed the opening of more emergency shelters, like the Sears Armory in Southwest Portland that began housing homeless women late last month. Hales also has directed the police to reduce homeless camp sweeps, contributing to the growing number and size of camps in the Overlook neighborhood and other parts of town.

And the mayor has raised the possibility of the city spending more general fund dollars to build affordable housing.

Until this year, the city’s contribution to affordable housing projects has come primarily from dedicated funding sources, such as urban renewal dollars or pass-through federal housing funds.

The city spent several million dollars of its surplus funds on affordable housing in the current budget. Hales wants to go further in next year’s budget, shifting money from other bureaus into affordable housing.

On Nov. 19, Hales sent a memo to all general fund bureau heads asking them to prepare budget requests for next year with 5 percent reductions. The memo says one reason is to identify money that could be spent to address a number of pressing issues, including “an affordable housing and homelessness crisis that requires additional resources to invest in the most effective approaches.”

The only general fund bureau spared from the requirement is the Portland Housing Bureau.

In the memo, Hales says the council already has set aside $10 million of additional money to respond to the housing state of emergency it has declared, adding, “I will call on every bureau to help us find solutions to the housing crisis.”

The council has the most discretion over how general fund dollars are spent. Because of that, it historically has been reluctant to spend that money on programs for which there are dedicated sources of funding, such as the housing and transportation bureaus. Top priorities for general fund dollars are traditionally the police, fire and park bureaus.

In the memo, Hales says he plans to continue those priorities.

“I will look to preserve core public safety functions so that we can respond to the epidemic of gun-related violence and proactively engage with the community. And I will continue to ensure that City resources are allocated to programs that have a direct impact on the lives of our citizens and that we focus on maintaining our assets and infrastructure,” it reads.

Although new revenue projections will not be available for a few more weeks, the memo says the city’s financial outlook is good, but some difficult budget decisions will still need to be made.