1% Off All Building Budgets To Help The Needy?

On the June 29th, The Portland City Council approved a new 1% construction excise tax on private and commercial property construction. There has been quite the commotion around this new construction tax in its discussion and review phase, and it’s truly no wonder: homelessness and high costs of housing property are one of the hottest topics at the city council in the last few years, and solutions are being sought. So what is this one about?

Is a construction tax the right answer to high property prices?

Expectations: 8 mil. USD / year

The construction tax concerns every building project in the private and commercial sphere. It will start being collected on August 1 this year, and according to the tax proposal made by commissioner Dan Salzman and director Curt Creager, the yearly revenue of the construction tax would reach approximately be $8,085,385 (the silliness of having an approximation be that precise is probably worthy of a whole blog post on its own). The sum from private housing projects will be distributed between the Inclusionary Housing Fund (IHF) and the Oregon Department of Housing and Community Services (OHCS). These organizations will get 85% and 15% respectively. 100% of the tax proceeds from the commercial building projects will be paid exclusively into the IHF.

At first glance, this seems like a great plan to support housing for the less fortunate in Portland. But unfortunately enough, that’s a statement I can’t make. One of my favorite proverbs goes: “A road to hell is paved with good intentions”, and in a way, it’s what came to my mind when I first read about this. Now, I am not trying to sound overly dramatic here, don’t get me wrong. If politicians take steps to help those in need, I am the first one to applaud them. But when they’re presenting the beautiful results, they also need to address the general consequences that not everyone can see.

Reality: Limited Buildable Land & Rise of Prices

By adding to the construction costs of (not only) residential buildings, the price of housing property will inevitably goes up, and given that Portland is already among the most expensive cities to live in, it’s definitely something to think about twice. And while the housing support is fairly broad — applying to 40% of the population — These costs will absolutely be passed on, and housing will  become even farther out of reach for many people.

Helping on one side while causing more trouble on the other is not something I’d consider a good solution. Aside from the direct effect on potential homebuyers, who knows what the long-term effects of this tax on new home construction in Portland will be?

In conclusion, to soften my apocalyptic proverb, I’m sure the construction and real estate market aren’t actually heading to hell right now, but it’ll sure be interesting to watch the development that will come out of this well intentioned, but potentially half-baked political step.