The Portland City Council passed 1 percent taxes on new commercial and residential development to help pay for affordable housing.

The council voted 5-0 to make Portland the first Oregon city to pass a construction excise tax since the state Legislature last session struck down a provision banning them.

“The lack of affordable housing is the greatest crisis facing our city right now, and the current market conditions are only increasing the crisis,” said Commissioner Dan Saltzman, sponsor of the tax, at Wednesday’s regular meeting. “I want to be clear that this construction excise tax is a tax on new development that ensures that growth pays for growth.”

Commissioner Steve Novick said he supported the ordinance with a reservation.

“As a stand-alone proposal I think this construction excise tax is well-calibrated, and the need for affordable housing is great,” he said. “However, I think that we do need to take a look comprehensively at all of the fees and taxes that we have on development. These costs do add up, and more and more fees will eventually tip the scales against a new development.”

As a companion policy to the tax, the council is considering whether to ask voters in November to support a $248 million bond to fund affordable housing.

Under the new law, developers of residential and commercial improvements in Portland will pay a tax of 1 percent of the value of their improvement.

A number of development types are exempt from the ordinance. They include affordable housing units, public and private school improvements, religious and agricultural facilities, some nonprofit facilities, and all improvements valued less than $100,000.

The tax was enabled by a package of affordable housing bills passed in the most recent legislative session. For 17 years, Oregon previously had a ban on construction excise taxes.

Over the past five years, the tax would have raised an annual average of $8.1 million ($5.4 million from residential development; $2.7 million from commercial), according to the Bureau of Development Services.

Four percent of total revenue will go to the BDS to cover administrative costs. The remainder will go to the Housing Bureau, which will administer affordable housing production and preservation programs.

Revenue from the residential tax will be split – 35 percent will go to affordable housing programs in Portland, 50 percent will go to developer incentives and 15 percent will go to the state.

One-hundred percent of revenue from the commercial tax will go to affordable housing programs.

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