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May 2010 | Volume 9 Issue 3   


"The Old Line State" Works to Assist Many New Families
California Links Environmental Concerns with Affordable Housing and Transportation
Impact Fee Cuts Increase Housing Affordability

Impact Fee Cuts Increase Housing Affordability

Local governments have long charged developers a one-time fee to pay for the cost of schools, parks, sewer systems and other infrastructure associated with new development. These impact fees may range from $500 to $10,000 per unit or more. There has long been concern that these fees not only raise the cost of new housing but also incentivize the construction of higher-priced housing. In markets across the country where new housing construction has grounded to a halt over the last few years, local governments are experimenting with reducing the fees they charge developers in an effort to stimulate new housing construction. This article will compare two approaches to impact fee reductions, one of which has shown more promising results.

Across-the-Board Impact Fee Reductions

Builders work on new home construction.Between 2007 and 2009, the median sales price of existing single-family homes in the Riverside and San Bernardino, California metropolitan areas declined 45 percent, from $379,500 to $169,700. In June 2006, more than 4,200 new single family homes were being built. By November 2009, there were just 195. However, there is evidence that suggests that a sea change is taking place. "In the last year or so, we've had a number of jurisdictions reduce their development impact fees. And those jurisdictions have seen, in the main, a fairly substantial increase in activity," said Mark Knorringa, Chief Executive Officer for the Building Industry Association of Southern California's Riverside County Chapter. The first community in his area to reduce its fees was Beaumont, California, which lowered development impact fees by 32 percent in February 2009. In Corona, the total fee reduction came to $12,000 per building permit. Perris, Menifee, Riverside County, Moreno Valley, and Banning also reduced their fees. Fee reductions in other parts of the country targeted at the development of more affordable housing appear to have been less successful.

Impact Fee Reductions for Affordable Housing

In 1992, Burlington, Vermont enacted a sliding scale of fees to incentivize affordable housing development. The city of 38,000 in the northwest corner of the state — the largest in Vermont — offered developers impact fee reductions ranging from 25 percent to 100 percent, depending on the unit's renting or selling price. "I don't know [that] I can say any [affordable housing] has been built as a result of the waiver," said Larry Kupferman, Director of Burlington's Community Economic Development Office. With a fee of $2,500 per 1,000 square feet, the reductions were not a sufficient incentive. "You have to have a range of policies and practices that, in the end, add up to something that encourages and incentivizes affordable housing," he concluded.

But it is not to assume that the waiver played no role in the development of affordable housing in Burlington. Green Mountain for Habitat for Humanity built 15 homes in the city that qualified for waivers. "I don't know that I can honestly say the impact fee waiver was what made those projects possible, but certainly it helps," Kupferman said.

In November 2009, Orange County, Florida attempted to spur the development of workforce housing by deferring impact fees. Rather than reduce impact fees, Orange County, located in the Orlando metropolitan area, initiated a deferment fee pilot program. The Orange County commissioners believed that eliminating impact fees altogether for workforce housing would be too costly. "If you eliminate impact fees, that's all well and good, but suddenly the local government doesn't have the funding it needs to build the infrastructure to serve the needs of the citizens," Harrison emphasized. The program allowed builders of certified workforce housing projects to delay payment of impact fees until there was a certificate of occupancy, rather than pay the fee up front. This deferral was designed to make it easier for developers to obtain financing by reducing the amount of capital they needed to get a project off the ground. "It's a little bit early, but I don't believe we've had anybody really pursue it," said Orange County Growth Management Director, Jim Harrison.


In California, there is some evidence that reducing impact fees for all types of housing can provide developers with the extra financial edge they need to make new construction profitable again in a market where housing construction has slowed to a crawl. Given the steep drop-off in the price of homes, this developer incentive has translated into an increased supply of housing that is more attainable. The increase in housing construction suggests that an across-the-board impact fee reduction can lead to the production of more housing units when compared to fee reductions targeted solely at affordable housing construction.


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