Affordable Housing Demolition Tax

Background

Since 2000, Evanston has experienced a loss of affordability with a significant increase in homes priced at or above $1 million. In October 2002, Evanston’s Housing Commission created an Inclusionary Zoning Task Force to study the gap between the supply of and demand for affordable housing in the city, as well as ways to address the gap. Participants included members of the Housing, Planning, and Human Relations commissions, two aldermen, private and nonprofit developers, and affordable housing advocates.

Based on the efforts of the Task Force, the Housing Commission made three recommendations:

• Through an inclusionary zoning ordinance, encourage private sector investment and development activity that will support affordable housing.
• Apply the inclusionary zoning ordinance to condo conversions.
• Implement a demolition tax to create a dedicated source of revenue to fund affordable housing initiatives within the city.

An ordinance creating an Affordable Housing Demolition Tax was presented to the Planning and Development Committee as a first step in implementing the Housing Commission’s recommendations. Data on residential demolitions and replacement housing indicated that low or moderately priced homes were being demolished and replaced with higher priced housing well beyond the reach of low-and-moderate income buyers. In April 2006, the Evanston City Council adopted the demolition tax.

How it works

The demolition tax assesses a residential structure demolition fee of $10,000 per building or $3,000 per unit, whichever is greater. Revenue raised from this tax is contributed to the Affordable Housing Fund for the creation, preservation, maintenance and improvement of affordable housing within the city. At least 50 percent of the revenue will be used exclusively to assist households whose incomes are at or below 80 percent of area median income, which was $57,900 for a family of four in 2014. The following are exempt from the tax:

• If applicants enter into an agreement with the city to provide affordable housing.
• If the Evanston Community Development Director determines the replacement structure will be affordable.
• If the demolition is ordered by the City.

Owner-occupants who demolish their homes in order to construct replacement houses for their own use have two options for paying the tax. An owner may apply to defer the tax if he/she has been the occupant for three consecutive years. In this case, a lien for the tax amount will be recorded against the property. If the owner sells the replacement house prior to the expiration of three years from issuance of the certificate of occupancy, the deferred tax plus interest is due. If the person remains an occupant of the replacement house for three years, the lien is released and no tax is due. Alternatively, an owner may pay the tax at the time the demolition permit is issued and later apply for a monetary stability incentive equal to the amount of the tax if the person remained the owner and occupant of the replacement house for three consecutive years after issuance of the certificate of occupancy.

Public involvement

The Affordable Housing Demolition Tax ordinance received some public opposition and generated debate among council members because it initially required owner-occupants who might continue to occupy the property to pay the tax up front. People were also concerned about equal protection if owner-occupants were allowed to defer payment but sold the replacement housing without meeting the three-year requirement.

Business and Professional People for the Public Interest (BPI) provided pro bono assistance to help resolve this and other issues. BPI drafted an initial sample ordinance, participated in public meetings to communicate the intent of the ordinance to the public, gave continuous feedback to city staff on revisions and offered alternatives for the collection of this fee. Ultimately, the City of Evanston adopted a BPI recommendation, which is known as the “stability incentive.” This gives homeowners eligible for reimbursement of the tax the option of paying the tax up front or taking a lien on the property.

Contact

Department of Community Development, City of Evanston
847-448-4311, www.cityofevanston.org