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Demolition tax not ready to come out of oven just yet

Mayor Charlie Hales put his proposed $25,000 tax on home demolitions up for its first public hearing Wednesday, and quickly acknowledged it’s not ready yet to be enacted.

“My hope is that this will cut the rate of demolition of serviceable housing in half and raise $2 million a year for affordable housing,” Hales said at the outset of a hearing lasting more than two hours.

But after hearing flak that his plan was filled with loopholes and unwise exemptions, Hales stressed that it’s still in the formative stages and he’s open to ideas on how to reshape it.

Jon Chandler, leader of the Oregon Home Builders Association, sent word that the demolition tax violates a state ban on real estate excise taxes.

Anti-demolition activists in the group United Neighborhoods for Reforms said it won’t accomplish what it’s supposed to.

A leader of a new affordable housing coalition said it may lead to a loss of affordable housing.

“It’s just a starting point,” Hales said at one point, urging those in attendance to help him reshape the plan. “There’s going to be more staff work that’s needed to refine the proposal.”

One of the biggest complaints is an exemption if a developer tears down a house and puts up two in its place, because that helps meet the city’s goals for increased density. But Jillian Detweiler, the mayor’s policy director, noted that only 36 percent of the demolitions taking place last year resulted in one home replacing another.

That exemption “will encourage demolitions and lot divisions,” said Barbara Strunk of United Neighborhoods for Reforms, which formed to halt the epidemic of demolitions across Portland's rapidly gentrifying neighborhoods.

The home that’s being replaced might be an affordable home, replaced by two more expensive homes, said Jes Larson, leader of the Welcome Home coalition of affordable housing advocates.

Strunk said the tax should be set higher, at $35,000, to have a real effect.

Others are concerned the tax will hurt the value of the “nest egg” of more modest homeowners hoping to sell their house before retiring elsewhere.

Conversely, a $25,000 tax on a demolition project might not accomplish much when high-end homes are built as replacements.

“When we’re talking about $1 million homes resulting, that almost certainly is not going to deter them,” said Robert McCullough, president of the Southeast Uplift neighborhood coalition.

The Home Builders Association of Metropolitan Portland opposes any kind of tax on demolitions, testified Paul Grove, the group’s lobbyist. The tax will make housing more expensive, he said, and make it harder, for example, to replace an old drafty home with one that’s energy-efficient.

The City Attorney's Office has concluded the demolition tax won't run afoul of the state ban on real estate excise taxes, said Thomas Lannom, director of the city Revenue Division. His staff have only been able to find two communities north of Chicago that have demolition taxes, both set at $10,000. Both have held up to legal challenges so far, he said.

“This is, if we do it, an innovation,” Hales said. “We have to try a lot of things to address the housing crisis in our community.”

The mayor promised to take the feedback under advisement and bring a revised ordinance back to the City Council at some undetermined future date.

To read the proposed ordinance: http://www.portlandonline.com/auditor/index.cfm?c=50265&a=548229