Earlier this week, Gov. Gavin Newsom signed a new bill with the stated goal to “help expand homeownership, reduce costs, [and] support more affordable housing.” Among other things, California Assembly Bill 179 identifies local development impact fees as barriers to housing opportunity—adding tens of thousands of dollars to the cost of new housing units.
Unfortunately, it falls short of meaningful reform.
The new law establishes that if a city or county is the lead applicant for a state-funded affordable housing project and chooses not to waive its own development impact fees for the state, the state will reduce the amount awarded by the amount of those fees. In other words, lawmakers recognize that those fees are not helping get more people into homes.
They correctly recognized that taxpayers should not have to reimburse cities for fees they choose to impose on housing projects and that taxpayer dollars for housing projects will go much further by not paying these fees.
Sadly, they did not see fit to extend this reform to their constituents.
California currently has some of the highest housing prices in the nation—despite enacting hundreds of bills in recent years that purported to solve the problem.
A recent study shows how lowering impact fees on new home construction for all California builders and buyers would have a major impact without increasing costs to taxpayers or increasing reliance on state government programming (additional taxpayer savings).
New research from the RAND Corporation suggests that reducing impact fees in California by even 25% could significantly increase housing production, while local governments would still generate revenue through usual tax collections from the new development.
That finding should attract attention from state and local policymakers seeking practical ways to increase housing supply without burdening taxpayers or raising costs for builders and buyers.
It also reinforces an argument Pacific Legal Foundation has made for years: when governments impose excessive fees on new housing, everyone pays the price.
Before ground ever breaks, developers may be required to pay fees for roads, parks, public safety facilities, public art, schoolsand myriad other local programs—including “affordable housing.” Adding tens of thousands of dollars to the cost of building defies the affordability argument. You cannot make housing more affordable by making it more expensive to build. Developers cannot absorb those costs out of goodwill. They must be included in the price of the homes that Californians ultimately buy or rent. And, in some cases, projects are abandoned—the costs too high to even consider.
This means fewer homes, higher prices, and a growing housing crisis in the Golden State.
RAND’s findings are particularly important because California’s impact fees are extraordinarily high. PLF has found that the state’s average impact fee in 2019 was almost $30,000 per new housing unit—more than three times the national average of over $9,000. In San Diego and Palo Alto, the fees reached staggering levels of $62,000 and $82,000, respectively.
In addition, the National Association of Home Builders found that every $1,000 increase in home prices prices out an additional 11,302 households in California.
If impact fees are so problematic that the state refuses to pay them when funding projects, then lawmakers have already acknowledged that these fees materially affect housing production and should act accordingly.
It is time for Sacramento to end housing extortion and provide Californians with a way to fight back against unfair fees.
Kileen Lindgren is a senior state policy manager for Pacific Legal Foundation. Rees Empey is a State Policy Manager at PLF.