Impact fees are adding nearly $20,000 per unit to affordable housing development costs in California, according to a new analysis.
Researchers at the University of California at Berkeley’s Terner Center for Housing Innovation recently studied the applications for 691 new construction projects awarded low-income housing tax credits (LIHTCs) between 2020 and 2023.
The study found that impact fees were not only a significant cost but prevalent. Nearly all of the developments, 658, had development fees.
On average, these fees added almost $19,806 per unit to development costs. However, per-unit fees varied widely, and approximately 13,660 affordable housing units—on 134 projects—were assessed more than $30,000 per unit.
Development impact fees are charged to new residential developments by local jurisdictions and other public entities. These fees are intended to mitigate the public costs that the new homes and residents will have on municipal facilities and infrastructure, such as sewage or roads. Cities can also impose fees to invest in parks or public art; offset the costs to the school district from new students; or pay to connect the new housing to water, stormwater, sewer, electricity, and gas systems, explains the Terner Center.
When it comes to affordable housing development, however, higher fees increase the amount of public subsidy required.
“Cities increasingly rely on impact fees from new housing developments because they don’t have many other options to raise funds for essential services,” says Carolina Reid, co-author of the new analysis. “However, imposing them on affordable housing only raises the costs of development. Given the affordable housing crisis, it makes sense to consider strategies to waive or reduce these fees to get much-needed affordable housing built.”
While on average, impact fees contributed to less than 5% of total development costs, over the four-year study period, affordable developments paid an average of approximately $300 million in fees each year.
Fee waivers, reductions, and deferrals can make a significant difference to project feasibility, lowering costs and reducing the need for additional public funding. In this case, if the fees weren’t charged, the resulting savings could have financed the development of an estimated 1,250 affordable housing units each year, assuming a per-unit subsidy of $200,000, says the report.
“Assessing the Cost of Impact Fees on Affordable Housing: An Analysis of Low-Income Housing Tax Credit Projects in California” by Carolina Reid, Leslye Corsiglia, and Ben Metcalf of the Terner Center can be found here.