Developer fees targeted by legislation as cities battle housing costs

by Steve Miller | August 11, 2015 6:17 am

Photo Credit:[1]

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Rent control is on the march in California, addressing years of leases that have increased to as much as 43 percent over the national average for a one-bedroom apartment[2].

In the last year, rent has increased 6.5 percent in the state.

Is Rent Control the Answer?

The answer for local politicians is rent control; 16 cities now have such policies, but it had been 30 years[3] since the last time any municipality enacted such a thing until Richmond did so August 6.

The state is one of the most expensive for both buying and renting, and more cities across the U.S., mostly on the coasts, are dealing with rent increases that are taking up to a third of some tenants’ annual salary.

In Richmond, rents have jumped an estimated 30 percent since 2011. To cover the administrative costs of the new rent control program, which begins Sept. 4, a fee will be imposed on all owners of rental properties[4].

But a review of reports and testimony surrounding a bill pending in the statehouse indicates that fees levied on developers is how we got to the ever-rising rents in the first place.

“Pay to Play”

The first report, which now reads as a road map to rent hike disaster, was released in August 2001[5] by the state Department of Housing and Community Development. Titled “Pay to play,” the report dug into the residential development fees that are now being noted as the primary cause of rent increases:

“California’s high residential development fees significantly contribute to its high housing costs and prices,” the report stated. “Among our sample of California jurisdictions, fees account for an average of 10 percent of the median price of new single-family homes. Fees account for a lower share of housing prices in more expensive housing markets and a higher share in less expensive markets.”

The report also included a simulation, calculating what would happen if development fees were cut. Using Santa Clara County as an example, a 50 percent reduction in development fees at a 45-unit apartment building would take down monthly rent by 4 percentage points, still allowing for a 10 percent return.

It’s hard for a lot of the public to be sympathetic to developers; over the years they’ve been portrayed as desecrators of open woodlands and the ruin of tradition. At the same time, without them, housing would be a mess. And stopping them, even worse.

Plethora of Fees

There are a dozen fees that can be leveled on developers. They include environmental documentation fees, school mitigation fees and something called a plan check fee, which involves a review of a planned building or development. In Long Beach, that can cost up to “85 percent of Building Permit fee per plan check, but not less than $112.58,” according to city documents[6]. In Roseville, a plan check can involve as many as seven city departments for a multi-family project[7]. If time is money, and it is for most developers, that can be a costly delay.

State Sen. Janet Nguyen[8], R- Garden Grove, introduced Senate Bill 341[9] in February that would, in part, address the state’s outsized development fees by requiring a periodic assessment of the various fees being charged by municipalities on developers.

Nguyen said in a May hearing of the Senate Standing Committee on Appropriations that the average local development fee in the state is over $22,000 as opposed to $6,000 in other states. And when adjusted for cost of living, California’s property tax rate is the highest in the U.S.

She noted that the last evaluation of the various development fees was done in 1998, “and it is time to update these numbers to find out what effect these fees have on current housing prices.”

But of course there’s a cost to the proposed periodic assessments; a Department of Finance representative said it would be around $300,000 each time.

If passed, Nguyen’s legislation would make California one of the rare states with a regular assessment of developer fees, said Clancy Mullen, vice president of Austin, Texas-based Duncan Associates, which advises municipalities on impact fees.

“Unless there is a push in a legislature to clamp down, these are not looked at with any regularity in states,” said Mullen, whose group compiled a 2012 survey on developer fees in the U.S[10]. “States may pass an enabling act then tweak it from time to time, but there is no regular review. This would be a first.”

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  2. 43 percent over the national average for a one-bedroom apartment:
  3. it had been 30 years:
  4. fee will be imposed on all owners of rental properties:
  5. released in August 2001:
  6. city documents:
  7. seven city departments for a multi-family project:
  8. State Sen. Janet Nguyen:
  9. Senate Bill 341:
  10. 2012 survey on developer fees in the U.S:
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