By David M. Greenwald
Executive Editor
A few weeks ago when conservative Steve Hilton broke out his plan to revive housing in California, one of the was targets— “impact fees.”
In the release, he said, “So-called ‘Impact Fees’ have become a Stealth Tax on housing. Fees per new housing unit of $150,000 to $200,000 are typical. We have even seen reports of fees as high as $300,000 per new apartment unit.”
Senator Scott Wiener, in the meantime, has introduced legislation—supported by, among others, California YIMBY—that would allow for the deferral of impact fees imposed by a local government until the certificate of occupancy is issued. Moreover, local governments may not charge interest rates on any deferred fees.
“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.”
On Tuesday, the Senate Housing Committee passed SB 937 9-0 and it heads to the Senate Appropriations Committee.
Given the depths of the California housing crisis and the cost to build housing, it is perhaps not surprising that some have latched onto impact fees as an avenue for reform.
In a recent column, Dan Walters in CalMatters this week noted, “While local governments had imposed some fees for decades, they began escalating sharply after voters in 1978 passed Proposition 13, the iconic property tax limit, to offset the loss of tax revenue.”
He noted a study—granted, from back in 2015—that found that fees for housing in California averaged $23,000 per unit and that was four times higher than the national average.
Walters writes, “Housing advocates have argued that reducing fees would increase production but local governments have zealously defended them.”
Last week, the US Supreme Court handed down a unanimous ruling that “conditioning the building permit on the payment of a traffic impact fee constituted an unlawful ‘exaction’ of money in violation of the Takings Clause.”
This doesn’t eliminate impact fees. Instead, it requires the local jurisdiction to prove that the fee matches the cost that a home would actually inflict on things like roads and highway.
Thus the court—and it’s important to note—unanimously has given developers a new legal tool to challenge fees that they believe are too high.
Perhaps just as importantly, the court ruled that fees could constitute unconstitutional “taking” of private property without compensation unless based on actual costs.
(As an important aside, I still think the takings clause bares watching on an issue of Measure J if that measure were to be challenged in federal court as a de facto unlawful taking of private property rather than in state court as an unlawful impediment to housing).
Dan Walters responded to the court ruling noting, “The ruling is a small step toward reducing some of the costs that make housing so expensive to build in California – a syndrome that, unless altered, will forever prevent the state from solving its housing dilemma.”
While I think the Supreme Court’s decision is reasonable and Senator Wiener’s bill, potentially at least, could alleviate some of the power of impact fees to block housing, I’m a bit wary overall of going after impact fees.
Walters recognized the connection to Prop. 13 and the need for local government to be able to pay for the impacts of housing. Eliminating impact fees, for example, seems like it would simply shift the costs of housing construction onto the backs of local taxpayers. That can hardly be the intended goal of those like Walters who rightly question the anti-housing impact of having fees so high.
But one of the complaints of anti-housing folks is that housing is a fiscal loser for cities. Basically the argument is that the costs on the community of each additional unit outweigh its tax benefit.
One way that communities have sought to counter that imbalance is through assessing fees on the developers for impacts that are likely to happen.
That seems like a reasonable approach. Of course, that relies on a system whereby the costs that are transferred to the developers are actually the costs that otherwise would be borne by the community.
Clearly, from both the article that Dan Walters wrote and the information released by Senator Wiener’s office, there is a wide range of fees that vary greatly from location to location.
Senator Wiener’s office noted, “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.”
Clearly, those types of issues need to be addressed.
But I would be very leery about any effort to get rid of impact fees altogether—instead of spurring new housing, it’s likely to make cash-strapped local government more reluctant to take on new housing projects.
You can’t take something from someone if they don’t have it. All Measure J does is approve or deny a rezone. If a parcel is zoned ag, you can’t “take” urban zoning from the owner because he doesn’t have it in the first place – he would lack standing to press a claim.
That doesn’t appear to be the direction the court is moving at this point.
Basic economics 101 is to align incentives for desired behavior. So far the cost of new housing borne by community through ongoing upkeep and services as well as the traffic/population impact causes communities to vote down new housing or enact policies and regulations that make creating new housing difficult if not down right onerous.
So if I were in charge of the state’s efforts for creating new housing; I’d enact a new law that states that all new planned commercial and retail development will require new medium and high density residential units that are integrated into the new commercial development or in an existing commercial area of a community. You could set it as some ratio of new housing units to square feet or projected job’s…etc.. (plus bonus affordable units).. Basically the idea is that if a community wants all that new sales tax revenue and jobs from new commercial development; then that community is forced to provide new housing for those jobs. So concurrently I’d have this mandate that ties commercial development directly to residential development go along with the RHNA numbers assigned by the HCD. If for some reason a community has a negative RHNA number; then that community could elect to not require new housing with new commercial development until that housing surplus has been used up.
I’d also like to restate my belief that the state (HCD) should focus it’s new housing efforts on the counties and not the cities. Again, by putting the onus on the cities to meet these needs; you’re fight most of the cities every step of the way. But if you put the pressure (with consequences) on the counties to then work with or pressure cities into cooperating in planning for new residential units. So in the case of new commercial development that has mandated residential units tied to it; the county becomes an option for new commercial development approval. A county would first seek to work with a city for an infill solution or peripheral solution. But if not; the county could take matters in it’s own hands and plan the project and let it be developed on county property likely adjacent to a city. So a city would have the option of taking on a new super retail shopping center that also has 1,000 residential units integrated into the plan. The city could move the whole project inside it’s own borders or annex and expand for peripheral development….and or move the housing portion to be integrated into an existing commercial real estate area of the city. Or the city ends up with a commercial real estate project with 1000 residential units right outside of it’s borders; garnering no tax revenue for the city.