Edwards Bill for Tax Breaks for Residential Fixer-Uppers Passes House

State Rep. John G. Edwards’ bill that would provide tax breaks for buyers of foreclosed or vacant homes and condos who plan to rehab or build new structures has passed the Rhode Island House of Representatives.

Edwards (D-Dist. 70, Tiverton, Portsmouth) said the legislation would pave the way for economic growth in the form of new construction jobs as well as a new supply of fresh housing stock, which the state badly needs.

“Rhode Island suffers from a housing shortage and no meaningful supply is being built,” Edwards, the House Majority Whip, said. “We can spur that by enacting this inventory tax exemption. It will provide a financial break to the already heavily regulated building industry, it will help create jobs in an industry still suffering with high unemployment and it can help increase state revenues because of the long-term implications of an improved housing market.”

The legislation allows new construction of development property to be exempt from real property taxation “as long as the owner of the development property files an affidavit claiming the exemption. Once determined by the municipal assessor that construction is taking place on development property, construction will be exempt from the collection of taxes on improvements,” according to a State House news release.

The legislation targets two types of properties. One is a single-family home or residential condo that is “not occupied, has never been occupied, is not under contract, and is on the market for sale.”

The other is when the owner has purchased a property out of foreclosure, auction or from a bank and also is unoccupied.

The tax exemption would last two years at maximum and would only apply for properties that get construction permits after July 1 2015.

The legislation does not apply to land and would sunset on Dec. 31, 2021.

“Rhode Island has an inventory of old homes, many of them expensive and not energy efficient,” said Representative Edwards. “And few market rate middle class homes are available or being built, compared to luxury or subsidized units. With the many fees already assessed to the building industry – impact fees, permit fees, review fees – it is no wonder that construction companies are disinclined to build homes on speculation or undertake rehab projects that are going to be a financial burden in the way of real property taxes until the properties can be sold.”

Though there would be a loss of municipal revenue as a result of the tax breaks, Edwards said the overall economic “shot in the arm” seems to outweigh the short-term lost, especially if the future improved property’s higher tax bills are considered.

The RHode Island Builders Association lobbied in favor of the bill and provided an industry study to state lawmakers during hearings that claimed a “healthy construction industry” would create $404 million in extra income for Rhode Island households and generate $60.2 million in additional tax revenue.

Co-sponsors of the Edwards bill are Rep. Jared R. Nunes (D-Dist. 25, Coventry, West Warwick), Rep. Kenneth A. Marshall (D-Dist. 68, Bristol, Warren), House Minority Leader Rep. Brian C. Newberry (R-Dist. 48, Burrillville, North Smithfield) and Rep. Blake A. Filippi (I-Dist. 36, New Shoreham, Charlestown, South Kingstown, Westerly).

A companion Senate bill, 2015-S 0559, has been introduced by Sen. Michael J. McCaffrey (D-Dist. 29, Warwick) and is before the Senate Committee on Housing and Municipal Government.