Following mild skepticism from some builders and strong support from community advocates, Medford City Councilors approved a construction tax that will fund new incentives to build more low- and middle-income housing within the city.
A tax of one-third of 1 percent on major construction, effective once the state approves a proposed expansion of Medford's city limits, is expected to add less than $1,000 to the average new home and generate a fund close to $500,000 using 2017 construction numbers, Medford Planning Director Matt Brinkley said Thursday night.
Some tax-averse councilors expressed surprise as they found themselves supporting the Construction Excise Tax, approved unanimously Thursday. Faced with a shortage of new housing and increasing demand in the city pushing up home prices and rents, councilors described the tax as a business-friendly move in the right direction.
The tax, modeled on one in Bend, sought planning staff input from more than 35 stakeholders, such as Randy Jones with Mahar Homes representing builders and Michelle Glass with Rogue Action Center, who asked the council to seek ways to stabilize the renters' market.
Brinkley said 2017's median home price, $272,000, has a typical monthly payment of $1,650. That's $547 above the $1,103 "rule of thirds" that the $44,130 median household income can afford.
For renters, "something like 45 percent of households" are "rent burdened" in Medford, he said, paying more than a quarter of their monthly gross income on housing.
The problem can affect city expansion down the line. Living costs are among the first things new employers consider when coming to an area, according to SOREDI executive director Colleen Padilla, who spoke at the meeting.
Jones said there was "no magic bullet" to reduce housing prices, but expressed support of the tax, which will go into a fund to which builders will submit proposals, among other initiatives. With the help of Jones' support, the council separately allowed the tax from new homes to be deferred from builders to buyers during the meeting.
"It takes all of these parts working together in order to accomplish what you asked us to do," Jones said.
Other major builders expressed concern that the tax is too general, such as Brent Hackwell with KOGAP Enterprises, which is building the 134-unit Stewart Meadows Village.
"Applying it across the board may not be the best," Hackwell said. "We should take a pause before we issue a new tax."
Shane Johnson with Hayden Homes, which he said had 43 permits in the city last year and among the lowest home prices with an average of $309,000, expressed a similar concern.
"If we want to focus on affordable housing, we're adding money to the cost, so it kind of makes it less affordable," Johnson said, suggesting that a $900 tax on a $272,000 home becomes $1,800 to the buyer.
"Of course we're not in favor of it, but we're not going to oppose anything that's going to make the community better."
The tax will be on major residential, commercial and industrial building, with exemptions including hospital improvements, religious facilities and private schools. Minor construction, such as installing a new electrical outlet, won't be subject to the tax.
Of residential project tax proceeds, 4 percent will cover administrative costs, 15 percent will go to the Oregon Department of Housing and Community Services to be sent to ACCESS for down payment assistance, and 35 percent will be dedicated for low-income housing projects (80 percent of the median income and below). The other half will fund programs to build housing for residents making less than 120 percent of the median income, according to Medford planning numbers.
— Reach reporter Nick Morgan at 541-776-4471 or firstname.lastname@example.org. Follow him on Twitter at @MTCrimeBeat.