*Amend Property Tax Exemption Code and System Development Charges for Affordable Housing Developments Code to temporarily enable homeownership opportunities for households earning up to 120 percent of median family income (amend Code Sections 3.102.040 and 30.01.095)

This legislation temporarily increases the maximum income level allowed for homebuyers purchasing homes benefitting from the Homebuyer Opportunity Limited Tax Exemption (HOLTE) and System Development (SDC) Exemption Programs. Portland Housing Bureau (PHB) administers the HOLTE Program, authorized under ORS 307.651 and Portland City Code (PCC) 3.102, and the SDC Exemption Program authorized under PCC 30.01.095. These development incentives help promote the creation of newly built homes that are affordable to low- to moderate-income homebuyers. Homeownership is traditionally considered to be one of the most accessible generational wealth-building tools and provides stability for families. The HOLTE Program provides a ten-year property tax exemption on the assessed value of homes which are built under the program and sold to eligible homebuyers within the annually established sale price cap. The SDC Exemption Program reduces the building permit cost by around $22,000 for each new home built. Together, the programs encourage the development of new homeownership opportunities within Portland. Both programs require homes to be owner-occupied and not used as rental properties. To income-qualify, homebuyers must earn no more than 100% of area median family income (MFI) for a household of four ($114,400). Currently, the sale price cap for 2023 is $455,000, which will remain the same in 2024. Current financial and other market conditions have increased the cost to build new homes, despite Council approved actions allowing denser, in-fill development. These same conditions affect the interest rates and loan terms available to homebuyers as well. With interest rates around eight percent currently, homebuyers’ purchasing power has been reduced significantly. As a result, home sales have declined, and homes are staying on the market longer. There are fewer homes available within prices affordable to homebuyers earning 100 percent MFI. More homes approved for the HOLTE and SDC Exemption Programs are selling for over the sale price or to unqualified homebuyers. In those situations, the SDCs are repaid, and the tax exemption is removed. Temporarily increasing the maximum income level for the HOLTE and SDC Exemption Programs to 120 percent of MFI ($137,280) expands the pool of income-qualified homebuyers able to access the programs. Doing so will allow homebuilders to continue with their participation in the programs rather than selling to over-income homebuyers, or risk converting homes to rental housing or ending up in foreclosure. The increase will not prevent homebuyers earning less than the usual 100 percent MFI to still purchase homes in the program in the meantime. Limiting the timeframe for the increased MFI level allows for the City to reassess the programs after two years, when interest rates will have hopefully decreased to more traditional levels as seen in the recent past.

The HOLTE and SDC Exemption Programs provide indirect financial assistance resulting in foregone revenue to the local taxing jurisdictions and the Bureaus of Environmental Services, Parks, Transportation, and Water. These programs also help promote new home construction which increases the amount of taxes paid on the newly assessed land, and on the increased value of the homes, after the HOLTE expires in ten years. Without new construction, these revenues would not be realized at all. It is in the City’s best interest to continue promoting new development because there is still a net increase to incoming revenue, despite the exemption programs. Expanding the income limit to allow access to more potential homebuyers will affect homes already in the planning phases, currently under construction, or built and listed for sale. Most of these homes have already been approved for HOLTE and SDC exemptions and have been accounted for within the current cap on HOLTE applications and already submitted to the SDC bureaus to have the exemptions applied to building permits. There are currently about 900 unsold homes already approved for SDC exemptions.

The development incentives programs promote new housing opportunities across Portland. This legislation to increase the MFI level for the HOLTE and SDC Exemption Programs is supported by the Homebuilders Association of Greater Portland, the Portland Metro Chamber, Oregon Smart Growth, and the Portland Metropolitan Association of Realtors. As the largest taxing jurisdiction affected by tax exemption programs, Multnomah County has approved the administration of the HOLTE Program to meet shared housing goals. The County Commission needs to approve this temporary increase to the MFI levels for the change to go into effect for the HOLTE Program.