BY LISA MAY The Director of Housing and Consumer Affairs for Maryland REALTORS® Can something as simple as tax policy spur exponential growth in housing starts? If the City of Salisbury’s experience is any guide, the answer is an overwhelming “yes!” Like every other city and town in Maryland, Salisbury was facing an unprecedented housing shortage. Those who accepted employment in the city quickly realized that their commutes would be longer than expected. There was nothing for them to purchase anywhere in the area. Wicomico County is home to 51,000 jobs, most of which are concentrated in and around Salisbury. However, only 17,000 housing units exist in that same geographic area. Something had to change. Fortunately, city leaders were willing to act. Putting a Plan Into Action In September 2021, Salisbury Mayor Jake Day announced the launch of the “Here is Home” Comprehensive Housing Initiative. Under this program, the city instituted regulatory and economic reforms to increase housing supply, expand housing affordability, and address chronic homelessness. Increasing housing is difficult under normal circumstances, but particularly so under current ones. Labor shortages are acute in the homebuilding sector while materials and land costs are growing exponentially. Day saw an opportunity to impact housing prices through the factors that are not subject to traditional market forces. Namely, the costs local government imposes on new dwellings. This was not a new idea. Salisbury began reducing housing fees several years ago by pausing residential impact fees, which are charged to recoup the costs of providing public infrastructure to new subdivisions. When that pause resulted in the first significant housing starts in more than a decade, city leadership knew there was promise to the approach. If a small reduction in fees could incentivize a modest amount of housing, what could a significant reduction in fees accomplish during a generational housing crisis? “Here is Home” puts that idea into practice. To spur residential development, Salisbury slashed the fees typically required for new construction for projects submitted from September 2021 through February 2022. Those include water and sewer connection fees, site fees, building permits costs, plan review fees, as well as waivers to annex properties into the city limits. Property owners and developers received these waivers through an executed agreement with the city that required them to meet certain timelines for plan submission, project commencement, and completion. If all deadlines are met, Salisbury refunds 100% of the fee total. Looking at the Bigger Picture It may be difficult for local governments to accept such losses of revenue. Salisbury was able to absorb the costs associated with the “Here is Home” program because very little construction activity was taking place to begin with. At a pace of just a few hundred building permits annually, the city’s development revenue was modest. Still, it required years of careful fiscal planning to allow the city to meet their budget and programming needs using non-fee revenues. In fact, the city’s budget assumes that there will be no residential development revenue at all. What is important for other local governments to recognize—and what Salisbury officials kept in mind—is that fee revenue is only one part of the equation. The economic impacts of new development must also be considered, and those impacts are significant. Historically, Salisbury saw construction activity of 100-200 new construction units annually, and approximately $60 million in construction-related activity. During the six-month “Here is Home” program application period, Salisbury received 67 plan submissions for over 8,100 housing units, all which will be delivered over the next five years. Those totals include 1,400 single family detached homes, 600 townhomes, almost 400 duplexes, and over 5,000 apartments and assisted living units. There are also affordable housing projects, Habitat for Humanity builds, and a transitional housing tiny home village that were able to move forward under the program’s other tax provisions. That total represents more construction activity in the city than the previous 27 years combined. What’s more, these units will expand Salisbury’s residential tax base by $1.4 billion, moving from the current $800 million to an impressive $2.2 billion. The city’s population is also expected to grow by over 20,000 residents, an increase of 60%. Salisbury will benefit from the property tax revenues generated annually from this increase, along with income and sales taxes from those new residents. As home builders have pulled resources from other areas to take advantage of “Here is Home” incentives, the city has already doubled their annual construction activity, which in FY 2022 will exceed $124 million. Of course, programs like these do not occur in a vacuum. Mayor Day credited REALTORS® with shaping the response to the housing shortage. The Coastal Association of REALTORS® met with city officials on several occasions to share information on the state of the housing market and offered their assistance on issues facing Salisbury. They also held discussions with the city’s development staff on what incentives would be most beneficial to spur new construction in the current environment. “The housing crisis was a surprise to all of us, both government and REALTORS® alike,” said Coastal Association of REALTORS® President Grace Masten. “Once inventory started to drop and we were sure this was going to be a long-term problem we started meeting with local officials to alert them to the trends we were seeing and the concerns for what this meant for the shore.” According to Masten, the city and its Mayor, Jake Day, moved proactively on the issue, and with the Salisbury City Council a plan was developed that would stimulate growth in areas that were primed for new development. “It was the leadership of the City of Salisbury and their willingness to try something new while thinking outside the box that put us in a position to react so quickly with such a wonderful program,” added Masten. Salisbury officials and local REALTORS® will readily admit that “Here is Home” by itself will not solve every housing issue the city faces, but with results like these, it is a huge step in the right direction.