Photo by Tolu Olubode on UnsplashSpecial to the Vanguard
Sacramento, CA – Senate Local Government Committee passed SB 937, legislation to defer cities’ collection of development fees (also known as impact fees), allowing more projects to pencil out. The legislation also extends permit entitlements, allowing projects on pause due to high interest rates to retain their permits until market conditions improve. The bill passed 6-0 and heads next to the Senate Housing Committee.
“High interest rates and other escalating costs make building homes more challenging, and we must not allow these costs to grind housing production to a halt,” said Senator Wiener. “By delaying when fees are collected and extending entitlements, SB 937 will allow more projects to pencil while keeping local governments whole.”
Cities vary widely in the development fees they charge for new homes in California, often for reasons that can seem arbitrary. Los Angeles reports a multifamily development fee of $12,000 per unit, while Fremont reports $75,000. The state contains more than its share of cities charging high development fees, with the six jurisdictions charging the highest recorded fees in the nation all located in California.
Some cities have deferred the collection of development fees during periods of economic hardship to prevent housing production from grinding to a halt. During the Great Recession, Fremont was one of many cities that deferred fees, and in 2023 it announced it would revive the program. With today’s high interest rates and rising costs driven by COVID-related inflation, developers are facing a similar challenge to make projects pencil. Developers need the flexibility of both fee deferrals and entitlement extensions to meet state housing goals amid challenging market conditions.
SB 937 builds on these efforts by delaying the payment of development fees imposed by a local government until the certificate of occupancy is issued. Local governments may not charge interest rates on any deferred fees.
The bill was amended in the Senate Local Government committee to prioritize mixed income housing.
During periods of economic volatility, some projects also die because their entitlements expire before the developer can raise the money to complete the project. Cities grant entitlements to developers as the last step before construction begins, but they are typically only valid for a limited period before expiring. SB 937 provides developers with much-needed wiggle room by extending housing entitlements issued prior to Jan. 1, 2024 and set to expire on or before Dec. 31, 2025 by 24 months.
Senate Bill 937 is sponsored by the California Housing Consortium and the Housing Action Coalition. It is co-authored by Assemblymember Tim Grayson (D-Concord).
A large portion of those development fees go toward water supply, which of course is particularly expensive in California. I’ve developed a couple of those fees for water utilities and reviewed the one for Davis when I was the Utilities Commission. The state may have to specify a formula for that portion. There’s some important assumptions made in these calculations that greatly influence the results.