Wilmette Village Board Postpones Decision on Demolition Tax

This past Tuesday (9/12/06) the Wilmette Village Board opted to table a vote on the proposed $12,000 demolition tax to be levied on all tear-downs. Good decision. This is a tough issue because the intent is not well aligned tactics.

At the heart of the issue is the intent of the Village Board, indeed all of Wilmette, to maintain some housing stock that can be purchased by people such as our parents, our younger siblings just starting out and even by us, for our parents, who we may want to live closer. This is a worthy initiative and has drawn a lot of attention. Some would have you believe that it is deeply flawed because it targets the "owners" of the older housing stock that is being demolished to make way for a new class of homes that are changing the face of Wilmette. I think that's wrong; strategically the proposed demolition tax will fail to support any kind of Affordable Housing initiative.

This past Spring, I was amazed by statistics showing that Wilmette's average sale price for single family houses had INCREASED to over $900,000 in a "terrible" real estate market. While certainly not in a league with Winnetka's average price, this is still a huge lift over the prior year. The driver: new home prices. It seems that virtually every block in Wilmette has a new house going up. Some of these new homes are wonderful and fit seamlessly into Wilmette's neighborhoods. Others are best described as "McMansions" and add mass, height and questionable style/material choices (ironically, the same reasons that the Green Bay Road/Wil-Shore Ford PUD project was turned down.) The common thread, however, is that each new home commands a price well above $1.3MM. So the intent to maintain the moderately priced homes is a great idea. Not everyone can get such a large mortgage.

Is this really a tax on the seller of an old house as most would have you believe? I don't think so. If I were selling a house, or representing the seller of a house, that had new development potential, I would structure the sale in order to avoid that tax, shifting the burden to the developer. After all, he's the one who stands to profit handsomely from the demolition. I also know that there is always a buyer for reasonably priced homes in Wilmette. So, the builder gets to pay the $12,000 tax, not me. Builders are an easy target for this tax because they tend to be "out-of-towners", they make a mess of our neighborhoods, they make us change our living patterns and they wake us at 7:00 AM on Saturday mornings. But, pinning our plans for affordable housing funds on this group is a hugely flawed concept.

If Wilmette wants to fund affordable housing, taxing a builder who wants to tear-down an old house is not the right strategy. Fundamentally it positions the initiative's financial support on a variable revenue stream. There will not be as many tear downs in 5 years as there are today. Even if there are, the supply of homes appropriate for demolition will dwindle. At some point the laws of supply and demand will force prices for these homes higher (a standard sized lot in Wilmette commands over $600,000 today), making it economically unreasonable to develop in Wilmette. More likely, development will slow as interest rates (continue to) climb, raising the cost of capital for builders. They can't pass on costs to buyers forever; their margins will have to erode.

We don't need to worry about builders. For Wilmette residents (and residents of other municipalities considering a tear-down tax) there are any number of scenarios that support the likelihood of an unpredictable development environment and that makes a tax on tear-down demolitions unrealistic. The task for our trustees is to identify a more stable and reasonable financial source to fund affordable housing. Any new tax on residents should be and will be met with stiff resistance. It would seem that re-visiting the development projects on Green Bay Rd (Wil-Shore Ford and Kohls Childrens' Museum) and encouraging the builders to help us create a broader tax base is in order. Revitalizing the downtown center of Wilmette and that at 4th-and-Linden should be a much greater priority. Bring in more commerce. Let's encourage restaurant owners to create a Wilmette version of Bluestone. These are all more stable revenue sources and certainly create something we all benefit from.

DS