Updated: Council Member Says New Taxes on Replacement Homes Would Raise $100 Million

Updated: Council Member Says New Taxes on Replacement Homes Would Raise $100 Million

Trade group opposed, says law would increase construction costs

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Glass

Council Member Evan Glass

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A proposed new bill from Council Member Evan Glass would implement impact taxes on “teardown” homes — new residences that replace existing construction on residential lots.

In a press release on Thursday, Glass said the legislation would raise $100 million for affordable housing and school construction over the next 10 years.

The full text of the bill, released Friday, calls for a tax on replacement homes that exceed the total square footage of the previous residence. The legislation suggests a tax rate of $9 for each square foot that the floor area of the new home exceeds the floor area of the old one.

The tax would apply to total and partial demolitions in which 50% or more of the original home is torn down.

The bill would also extend school impact taxes to “teardown” construction. Currently, new residential construction on vacant lots is already subject to the fees — which raise money for school construction — and to transportation impact taxes depending on the existing transit options in the area.

But replacement homes aren’t subject to the same taxes, which Glass described as a “loophole” in the law that prevents the construction from contributing fairly to the county’s infrastructure needs. His bill would extend school impact taxes — but not transportation taxes — to new, reconstructed, or altered single-family homes built before the school impact tax was first established on March 1, 2004, which have never been subject to those fees, according to the draft legislation.

Glass’ office confirmed that 57% of the newly implemented fees would would go toward school construction and the remaining 43% would go to the Housing Initiative Fund, a reserve established in 1988 and dedicated to financing affordable housing projects.

Neither Glass nor his chief of staff, Valeria Carranza, responded to a request for detailed numbers that could explain how they reached their $100 million estimate. The bill is already getting pushback from the building industry, which says the new fees would squash an already niche market and fail to raise the anticipated funding.

“I mean, people are just going to stop buying these older homes,” said Lori Graf, CEO of the Maryland Building Industry Association. “It really disincentivizes them from making these purchases, and in other jurisdictions, you just see that type of construction slow or stop completely.” 

Glass on Thursday announced his intentions to introduce the legislation, but gave few details on his proposal. He plans to hold a press conference on Tuesday to explain it further, according to the release.

The language of the bill specifically targets homeowners or developers who build replacement homes larger than the previous dwelling. Demolishing older homes “often result[s] in the creation of substantially larger and less affordable homes,” according to the legislation. Glass believes replacement homes should be subject to the same impact taxes of new construction.

But Graf argued that replacing an older home doesn’t have the same impact as building a new one.

“The councilman is saying this is closing a loophole, but we would argue that when these fees were introduced in 1986, this exemption was on purpose,” she responded in a phone interview on Thursday. Unlike completely new homes, “teardown” dwellings exist on lots that have contributed property taxes for years, she said.

The replacement home also doesn’t require the addition of any new infrastructure such as water or sewer lines, or add to the school population any more than the previous home, Graf added.

The Building Industry Association was provided an advance copy of the legislation and plans to lobby against the bill. The additional taxes would be swallowed by builders and passed onto homeowners, Graf said, and limit a niche industry that doesn’t contribute much to the county’s total construction.

“These are custom homes,” she said. “Some of them are built on spec.” The county currently receives an average of 220 “teardown” permit applications a year, she added, which makes the $100 million estimate unlikely to add up.

If each of those 220 houses were 3,000 square feet bigger than the previous residence, with a $9-per-foot impact fee, the fee would generate $59.4 million over a 10-year period if the county continued to receive the same yearly number of permit applications.

But Graf said the addition of new taxes would likely slow down the construction of “teardown” homes.

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