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Editorial: California housing prices are too damn high. Cities can help change that if they want to

Home construction
A contractor works on a home under construction in Irvine in 2014.
(Bloomberg)

The cost of building new housing in California is too damn high. And one reason is all the pricey development fees layered on new apartments, single-family homes and even affordable housing projects.

Cities throughout the state collect an assortment of fees from builders to raise money for such things as parks, schools, public art, affordable housing, transportation, environmental protection, fire and police service and city facilities such as libraries and sewer systems. These “impact fees” are designed to help cities offset the costs of serving the residents who will move into the new homes.

But all those fees add up. In Los Angeles, impact fees cost almost $14,000 per unit for apartments and condominium projects and $11,000 for single-family homes. In Irvine, the same fees are $22,000 and $16,000, respectively. The Bay Area suburb of Fremont charges fees that add up to $22,000 per apartment and a whopping $35,000 for a single-family house. That’s according to a report commissioned by state lawmakers and prepared by the UC Berkeley Terner Center for Housing Innovation.

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While impact fees are part of the normal cost of development in cities across the country, California has the highest in the nation, on average. In some cities, all the various fees charged to new development can add up to 18% of the cost of the median home. That not only raises the cost to buy or rent in California, but it can also make new construction so expensive that certain residential projects don’t get built. That only worsens the state’s housing shortage.

Now a handful of Democratic lawmakers have proposed eight bills that would cap development fees and change the way such fees are calculated, disclosed and justified by local governments.

The effort is being led by Assemblyman Tim Grayson (D-Concord), whose 2017 bill commissioned the statewide study of development fees. Grayson’s new bills include proposals limiting a city’s or county’s fees to 12% of the median price of homes sold there and requiring the state to reimburse cities that waive impact fees on affordable-housing projects. He also wants cities to assess fees based on a project’s square footage rather than per unit, which would make it cheaper for developers to build smaller, less pricey units.

This is not the only effort to rein in development fees. Proposition 13 — the $15-billion school construction bond measure on the March 3 ballot — would impose a 20% reduction in school-related impact fees on new multifamily developments, and waive those fees altogether when developers build near transit stops. That could siphon a lot of money from urban school districts with lots of new infill housing construction, which is one reason the Los Angeles Unified School District hasn’t come out in support of the bond.

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Grayson and his colleagues are likely to run up against the same concerns over local control and growth that have squashed other bills to reform local policies to boost housing production, including Senate Bill 50.

Locals have a legitimate gripe — and they need state lawmakers to help with solutions, not just impose mandates. Cities in California rely on development fees to a much greater extent than communities in other states. That’s because of the original Proposition 13 in 1978 and other state laws that strictly limit property tax increases, which curtailed the revenue that had funded local infrastructure and services. There have been other cuts as well — the federal government used to spend a lot more money on local infrastructure, and the state’s dissolution of local redevelopment agencies in 2011 diverted billions of dollars a year that communities had been using to finance affordable housing and community improvements.

Development fees are a politically popular way for cities and counties to raise money because, unlike property taxes or sales taxes, they don’t affect existing residents. They hit developers, who then pass the cost on to future residents through higher rents or sales prices. That makes new housing more expensive. Or, if the fees are too high, developers may forgo construction, particularly of lower-priced housing that can’t recoup the fees. One study found that high fees led to a decrease in construction of affordably priced “starter homes” in California. In some anti-growth cities, that’s the goal — to set fees so high that no development occurs in their borders.

Other cities, however, have looked for reforms. Some have waived impact fees for granny flats or cut fees for affordable housing units. Others have delayed collection of impact fees or reduced fees for projects located in areas where they want to concentrate growth.

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Development fees are just one reason for the astronomical cost of building new homes in California. Land has gotten more expensive. So have labor and construction materials. But cities can control impact fees — along with the time it takes to permit new homes — and lowering or changing such fees can help make it easier to build much-needed housing.


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