Terner Center Blog: No Limits

It All Adds Up: The Cost of Housing Development Fees in Seven California Cities

Posted on by Sarah Mawhorter and David Garcia

In the summer of 2017, the Terner Center embarked on a seemingly straightforward task: determine the amount and type of fees levied on new residential development in seven California cities. What was initially thought to be a clear assignment turned into an odyssey of combing through difficult-to-obtain fee schedules, cobbling together piecemeal information across city departments, and repeatedly interviewing various city planning officials.

The onerous and lengthy process our research team faced tells the story of the development fee process in California. While fees act as an important tool to mitigate the effects of new construction, the development and administration of these fees is often opaque and lacking oversight, greatly contributing to the complexity and cost of building new housing. These are the conclusions drawn by the Terner Center’s latest report in our Cost of Building Housing Research Series: It All Adds Up: The Cost of Housing Development Fees in Seven California Cities.

What do total development fees in certain California cities really amount to? How do cities determine their fees, and how are they implemented? How much of this information is available publicly? And what can be done to improve the implementation and structure of fees across the state? Our new report explores these questions through a comprehensive case study analysis of development fees in Berkeley, Oakland, Fremont, Los Angeles, Irvine, Sacramento and Roseville. From this research, we have revealed several problems with the way that development fees are currently implemented in California cities:

  • Development fees are extremely difficult to estimate.
  • Development fees are usually set without oversight or coordination between city departments, and the type and size of fees levied vary widely from city to city.
  • Individual fees add up and substantially increase the cost of building housing.
  • Projects are often subject to additional exactions not codified in any fee.

Sum of City Service and Impact Fees per Unit by Type Estimated for Prototypical Multifamily and Single Family Projects

These findings have significant implications for the cost and delivery of new housing in California. For example, our research found that total fees can amount to anywhere from 6 percent to 18 percent of the median price of a new home depending on location. Moreover, without standardized systems to estimate development fees, builders must rely on informal relationships with planners and building officials to obtain accurate estimates—a system that is neither reliable nor fair—and the unpredictability of these fees can delay or block projects altogether.

Moreover, the broad authority afforded to cities to levy fees results in wide variation of type and amount of fees between cities. For example, our research found that while one city requires new development to pay a park impact fee of $350 per single family home, another city requires a park impact fee of $55,000 per single family home.

What should be done to improve the way development fees are determined and implemented in California? In our report we make several policy recommendations for state and local policy that could greatly increase the transparency and efficiency of the structure and implementation of development fees, some of which have already been introduced in the state legislature. (1) As part of a broader set of actions to increase supply and housing affordability, these recommendations could have meaningful impact on California’s severe supply shortage and urgent affordability challenges.

 

(1) AB 3147 would prohibit a housing development project from being subject to a fee, charge, dedication, reservation or other exaction that is more than that in effect at the time that the application for the housing development project is determined to be complete.


Perspectives: Practitioners Weigh in on Rising Housing Construction Costs in San Francisco

Posted on by Carolina Reid and Hayley Raetz

It is no secret that producing new housing in California is an expensive endeavor. Our Cost of Building Housing Research Series recently launched with the goal of understanding why this is the case, breaking down the elements of the housing development process to identify key cost drivers and potential private and public sector solutions. Today we are releasing our first brief of the series, which examines rising housing construction costs in San Francisco from the perspective of non-profit and market-rate housing developers, architects, and other practitioners on the ground. The brief shares findings from a series of interviews and focus…


Announcing New Terner Center Series: The Cost of Building Housing

Posted on by Terner Center for Housing Innovation

In recent years, the housing affordability challenges faced by high-cost regions have gone from bad to worse. A number of factors, including shrinking public subsidy, explosive job growth, wage stagnation, and a severely constrained supply of housing have all been widely cited as drivers (with each region facing a unique set of circumstances). Another factor that is compounding the housing affordability issue is the actual amount of money it takes to build a housing unit. In recent years, the cost of building has skyrocketed in places like San Francisco - in some cases increasing by up to 50 percent -…


ADU Update: Early Lessons and Impacts of California’s State and Local Policy Changes

Posted on by David Garcia

A multi-pronged approach to alleviating the shortage of housing in California and other high-cost regions is urgently needed. As we have discussed in past research, Accessory Dwelling Units (ADUs) - built with a small footprint predominantly in under-utilized single family neighborhoods - can offer much needed naturally-affordable supply to the market. In the fall of 2016, the California State Legislature passed a set of bills intended to clear the way for the proliferation of ADUs  in California. Even before these changes were adopted, many leaders at the local level were pioneering policies to make it easier for residents to build…


New State Policies Aim to Boost Access to Opportunity through Housing

Posted on by Elizabeth Kneebone and Carolina Reid

In California, the Tax Credit Allocation Committee (TCAC) plays an important role in determining where and how Low Income Housing Tax Credits (LIHTC) get allocated for the production of affordable housing. On Wednesday, TCAC adopted a series of policy changes aimed at increasing the development of affordable housing options for families in higher opportunity communities, signaling a commitment to advancing fair housing goals amid the state’s broader agenda to address California’s housing crisis. The regulations seek to respond to a growing body of evidence that communities that provide low-income families access to good schools and safer, lower-poverty, and less segregated…


A Reform Proposal for the Federal Housing Administration

Posted on by Carol Galante

Media reports and other sources in Washington, D.C. suggest momentum is building for housing finance reform. According to a recent piece in National Mortgage News, “the White House and congressional GOP are eyeing a tight window between tax reform and the 2018 midterms to pass housing finance reform. And with key policymakers readying their exit, the effort could be the most concerted push yet.” As policymakers debate the future of the nation’s housing finance system, I urge them not to overlook both the importance of the Federal Housing Administration and the improvements it needs in order to fulfill its mission and…


Scaling Off-Site Production in the United States: Lessons Learned from Swedish Leader Lindbäcks

Posted on by Mark Trainer and Carol Galante

When it comes to innovation in housing, what does the U.S. have to learn from Sweden? More than you might think. Though they have different histories, economies and social contexts, Sweden and the United States share many housing market challenges – including significant barriers to new construction and high cost of production leading to rapidly appreciating housing prices, especially in urban centers. The Terner Center recently published a policy brief providing a detailed examination of the Swedish housing system, and a companion summary outlining key similarities and differences with the United States. And last month, the Terner Center for Housing…


Lessons for the Future of Public Housing: Assessing the Early Implementation of RAD

Posted on by Carolina Reid

In its 2018 budget, the Trump Administration is proposing to slash public housing funding by $1.8 billion. This cut represents a 29 percent decline from 2017, and will compound a longstanding trend of underinvestment in public housing and worsen an already dire situation. Over time, these shortfalls in federal funding have resulted in a $26 billion backlog in needed repairs, leaving many residents in public housing units across the country with untenable living conditions and a precarious housing future. In addition, every year we lose valuable units of public housing to demolition because of this lack of investment: HUD reports…


Paying For Dirt: Where Have Home Values Detached From Construction Costs?

Posted on by Terner Center

Home prices reflect the value of the land and the value of the structures and other improvements on that land. In high-cost metro areas of the United States, the exorbitant cost of a house may not seem to be justified by its appearance, suggesting that homebuyers are paying a premium for their location. In a recent blog post “Paying For Dirt: Where Have Home Values Detached From Construction Costs?,” Issi Romem, Chief Economist at BuildZoom investigates the disparity between the appearance and price tag of homes, identifying the places in which home buyers pay mostly for the location. The main…


Richard Rothstein Lecture on The Color of Law at the Terner Center

Posted on by Terner Center

On Thursday, September 28, the Terner Center, in partnership with the UC Berkeley Department of City and Regional Planning, hosted Richard Rothstein, author of The Color Of Law: A Forgotten History Of How Our Government Segregated America. Rothstein spoke to a standing-room only crowd in Wurster Hall about the legacy of the many government policies that fueled segregation in American cities for decades, and discussed the implications of his research with Terner Center Faculty Director Carol Galante. We invited Rothstein to provoke our collective thinking about important, challenging, and uncomfortable issues in housing policy. We believe it is critical to…