Builders in Bay Area Say Impact Fees Curtail Home Construction

Across the Bay Area, six-figure impact fees imposed on small multifamily developers have helped put the kibosh on home construction.

But a recent ruling by the U.S. Supreme Court could limit the impact fees the state can levy, which some say could lower the barriers to building homes, the San Jose Mercury News reported.

The case involved landowner George Sheetz, who challenged the $23,420 fee El Dorado County required to fund local road expansions. Sheetz sued, arguing the Constitution’s taking clause limits what the government can take without fair compensation.

Previous cases have required such fees to be “roughly proportional” to a development’s impact. But state courts have held local governments to a lower standard.

In a unanimous decision, the Supreme Court found that was incorrect, and remanded the case to the state court for reconsideration. It’s unclear what new standards the California court will direct cities to adopt.

But the once-soaring impact fees are likely to be brought down to size.

“California cities had enjoyed an exemption from having to show their work to justify their fees,” Dave Lanferman, an attorney specializing in impact fees, told the Mercury News. “No longer.”

For decades, California municipalities levied some of the highest impact fees in the country.

The high fees can be traced back to 1978, when voters passed Proposition 13 to limit property taxes local jurisdictions could collect. With their ability to raise revenue curtailed, local governments started looking for new ways to pay for schools, parks and transportation projects.

The impact fees have long been criticized by developers, who say that each dollar added onto the cost of a project makes it harder to complete.

“These fees are costing us a lot of housing — housing that we never see proposed,” Dylan Casey, executive director of the California Housing Defense Fund, which sues cities and counties to get them to comply with state housing law, told the newspaper.

Often, the developers hurt by high impact fees are small-time builders, while developers of large projects tend to negotiate their fees with cities.

Bringing down these fees to more “reasonable” levels could help make it easier for projects small and large to pencil out, spurring housing production. Cities could unlock long-term revenue streams generated by new homes, such as more property and sales taxes.

“If you do nothing, that’s the worst-case scenario,” Erik Schoennauer, a development consultant in San Jose, told the Mercury News. “You’re not getting fees, and you’re not getting housing either.”

Last year, Jonathon Yu filed plans with the City of Sunnyvale to tear down a 1,000-square-foot bungalow and replace it with a three-story, five-unit apartment building.

But when the 29-year-old product manager sought a permit for the $3 million project, the city socked him with $300,000 in impact fees.

“What stopped me were the impact fees,” Yu told the Mercury News. “If I would have completed the structure, it would’ve been the most affordable new housing in the area.”

— Dana Bartholomew