One reason housing is so expensive in California? Cities, counties charge developers high fees

A long-awaited study detailing how much cities and counties charge developers to build housing in California found that such costs are often hidden, vary widely across the state and have slowed growth.

The report, released this week by the state Department of Housing and Community Development, comes as Gov. Gavin Newsom and state lawmakers continue to search for ways to lower construction costs to help remedy a shortage of available homes. The study recommends that legislators push cities and counties to make public their fees, set standards for services so that costs will be more predictable and take into account how they affect housing production.

“While fees offer a flexible way to finance necessary infrastructure, overly burdensome fee programs can limit growth by impeding or disincentivizing new residential development, facilitate exclusion and increase housing costs across the state,” said the report by researchers at UC Berkeley’s Terner Center for Housing Innovation.

In California, local government fees on housing construction, which can be used on parks, traffic control, water and sewer connections and other services, were nearly three times the national average in 2015, according to a 2018 Terner Center report. In some cities, researchers found, fees can amount to 18% of median home prices.

Costs also fluctuate from city to city. In the Bay Area suburb of Fremont, the study said, fees cost $22,000 per unit for apartment and condominium complexes and $35,000 per unit in single-family projects. In Sacramento, those same fees are $8,500 and $13,000 per unit, respectively.

The study was required as part of 2017 legislation by Assemblyman Tim Grayson (D-Concord) that aimed to identify how state lawmakers could substantially cut fees on new homebuilding.

“At first glance, this study confirms what we have long suspected: that in some areas, local fees on development are so burdensome that they are reducing the ability to construct needed housing and increasing the cost of living for residents,” Grayson said in a written statement. “If we have any hope of lifting our communities out of this crisis, then our local fees must be aligned with our statewide production needs.”

Grayson said he planned on amending Assembly Bill 1484, which is pending in a Senate fiscal committee, to include a proposal to limit local development fees. The deadline for the bill to pass both houses of the Legislature is mid-September.

Under Grayson’s 2017 legislation, the report was required to be completed by June 30 of this year. But Newsom withheld it, and the state housing department only released the report after questions from the L.A. Times.

In early July, The Times asked the governor’s office when the report would be released, and did not receive an answer. Last week, The Times submitted a public records request to the state housing department, which initially refused to release the study because it was awaiting approval from Newsom’s office. The department added that it would make the study public after that happened and one day after providing it to the Legislature for review. The Times contended there was no legal reason to withhold the report and told Newsom’s office it planned to write about the delay. The housing department then released the study late Monday.

Newsom’s office did not respond to a request for comment on why it did not release the report in June and whether the governor planned to act on the study’s findings.

While the study recommends that lawmakers examine ways to reduce fees, it warns that cities and counties often need the revenue to pay for services because of property tax restrictions put in place by Proposition 13 in 1978. The initiative limits taxes for homes and businesses to 1% of a property’s taxable value. The initiative also restricts a property’s taxable value from increasing more than 2% each year, no matter how much its value rises on the market.

“If the state wishes to lower impact fees but also ensure sufficient infrastructure funding, it should consider pathways to adjust Proposition 13 in order to expand the capacity of localities to generate their own revenue,” the report says.