Demolition taxes usually require property owners to pay a fee and/or tax for every demolished residential unit. These taxes seek to prevent the loss of affordable housing to new, often more high-end, development. Demolition fees work best in areas with a hot real estate market and should be avoided in areas with high levels of blight or abandoned properties. The goal of a demolition tax is to offset the negative impact of new development, rather than to discourage demolition of unsound buildings.
In 2002, Chicago suburb Highland Park established an Affordable Housing Demolition Tax to fund the city’s Affordable Housing Trust Fund (created in the 1980s). The city became concerned that the demolition of housing in Highland Park was leading to a reduction in the diversity of the city’s housing stock and resulted in fewer affordable options. To correct for this effect, the city imposes a fee of $10,000 per building or $3,000 per residential unit (whichever is greater) on properties of which 50 percent or more is demolished. The tax does not apply in the case of demolition for the development of affordable housing, if the occupant has owned the home for five years and plans to own the home for at least five years after the demolition or in the case of city-ordered demolitions.
The tax brings in around $750,000 annually. As of 2013, the tax has generated more than $3.1 million, which has been used to leverage an additional $5 million in outside funds to help fund the development of 44 permanent affordable housing units. The majority of the revenue received is allocated to the city’s housing trust fund, while one-third goes into the city street and bridge fund. The housing trust fund also receives funding from a $400 per unit demolition permit fee, as well as inclusionary zoning in-lieu payments.
For More Info:
Lee Smith, City of Highland Park Department of Community Development
Email: [email protected]