California's Fees on New Development Are 3 Times the National Average. New State Legislation Would Cap Them.

California lawmakers have introduced legislation to cap impact fees, change the way they are assessed, and give developers more tools to claw back unjustified charges.

A lot of public policies in California make housing more expensive and more difficult to build. That includes the impact fees that cities and counties impose on new developments to pay for infrastructure, schools, and other services.

According to a 2015 survey, the national average impact fee was $5,484 for a two-bedroom apartment and $8,298 for a single-family home (not including utility hook-up fees). In California, the average fees were $15,555 for a two-bed apartment, and $23,455 for a single-family home.

A 2018 study from the University of Berkeley's Terner Center found that some cities were charging impact fees in excess of $150,000 for single-family homes, and that these fees could be as much as 18 percent of an area's median home price.

To ease the burden of these fees, California lawmakers introduced a package of bills yesterday that will cap the fees cities can charge, change the way they are assessed, and give developers more tools to claw back unjustified fees they've been pinged with.

"During the worst housing crisis in the history of California, when housing units can cost upwards of $800,000 per door and impact fees can account for one-sixth of the cost of each unit, we have to think differently," said Assemblymember David Chiu (D–San Francisco), one of the lawmakers sponsoring the fee reform bills, at a press conference.

Chiu's own bill, Assembly Bill (A.B.) 3148, would require cities to reduce the fees they impose on affordable units produced through the state's Density Bonus Law, which allows developers to build larger buildings in exchange for renting out a portion of their new units at below-market rates to lower-income tenants.

The bill would reduce fees by 75 percent for units reserved for very low-income renters, with smaller fee reductions for low- and moderate-income units.

Another bill in the package, Assemblymember Tim Grayson's (D–Concord) A.B. 3145, caps the total value of per-unit fees that local governments can impose on any housing development at 12 percent of a city or county's median home price.

With the state median home price at $600,000—and cities like San Francisco's median home value at $1.3 million, according to Zillow—that still leaves room for incredibly steep impact fees. However, putting an upper bound on what local governments can charge does limit these fees' use as a tool by NIMBY ("not in my backyard") activists.

"You do have a lot of cities that use the fees in somewhat nefarious ways to block housing," says Matt Lewis of California YIMBY, who notes that local officials can cynically slap on exorbitant fees that are intended to make proposed housing projects uneconomical.

Two other bills introduced by Grayson would limit local governments to only imposing impact fees and other requirements that are proportional to the impact of the new housing being proposed, and allow developers to pay what they consider unfair fees in protest, and potentially reclaim fees they were charged.

A mix of high spending and state restrictions on raising taxes means local governments in California depend heavily on impact fees for raising revenue. Any effort to limit their power to impose these fees is, therefore, going to be controversial.

Representatives for both the state's Association of Counties and the League of Cities—which represent local governments—stressed to the Associated Press that impact fees are used to pay for vital infrastructure, and that state-level limits on these fees should be coupled with additional state funding.

One bill in the package would partially address this concern by creating a new state grant program that would partially reimburse local governments for the impact fees they waive on affordable housing projects.

The bills are still in a very preliminary stage, and are going to be heavily marked up. So there's a chance that more revenue for cities and counties will be included somewhere. (Expecting local governments to cut costs or find efficiencies in how they spend their money is probably too much to ask.)

Fixing California's pressing housing affordability issues will require building a lot more homes. That's not going to be possible while local governments impose the highest fees in the country on new development. Yesterday's suite of bills is thus a step in the right direction.