Editorial: California needs local housing fee reform

Local fees prevented the building of 5,000 new homes for low-income Californians from 2020-23. That’s detailed in a new study by UC Berkeley’s Terner Center for Housing Innovation. The study looked at 691 construction projects in California built under the federal Low Income Housing Tax Credit program. “Local impact fees” added an average of almost $20,000 per unit, totaling $1.2 billion. Absent the fees, the program could have funded 1,250 additional affordable housing units each year.

The fees are charged by cities, counties, schools and other districts to pay for roads, schools and other infrastructure.  The San Francisco Chronicle reported local “officials say” the fees are needed because Proposition 13, the 1978 tax limitation measure, “has limited their ability to fund these services using property taxes.” That’s true in some sense and not true in other senses.

“California is not a low property tax state,” reminds Jon Coupal, president of the Howard Jarvis Taxpayers Association. “We rank 18th out of 50 states in per capita property tax collections.”

While Prop. 13 does limit the growth rate of property taxes, local governments often use the measure as a pretext to look for any way to extract money from any productive activity in their jurisdiction.

Ironically, as Sen. John Moorlach told us, the reduction in housing development as a result of these fees meant cities were ultimately missing out on additional property tax revenues anyway. 

As remedies, the state could require fee waivers because of the severity of the housing crisis and the state could reimburse cities for some of those waivers when there are actual cost impacts. But the Terner study rightly warned against creating “an incentive to keep fees high.” 

To control for this, “impact fees should be rooted in actual fiscal impacts,” Nolan Gray, senior director of legislation and research at California YIMBY, told us. The fees should use to benefit the actual units, he said, not just generate extra revenues for governments, “which is how they are used today.”

Specifically, the Terner study notes up the state could “offset” the loss of fees with more funding for the Infill Incentive Grant Program, which helps fund infrastructure. Gray agrees. He said most state subsidies go to fund new individual units, but emphasizing infrastructure “could catalyze far more housing at much lower cost.”

Gray also notes that, although the study looked at affordable housing, “we also need to build more market-rate housing for the middle-class,” construction of which also is impaired by high fees. The failure to build market-rate units only puts greater pressure on older, lower-priced housing, so arbitrarily high fees here, too, undercut affordability in the long-run.   

Gray urges a “mature conversation” about cutting the housing fees and gaining additional state subsidies for the infrastructure so local governments weren’t so incentivized to slap fees on new developments and ultimately reduce the amount of housing coming online. 

A good place for the conversation to start would be in the races for governor and state legislature.

There’s no denying that California has a shortage of housing. While this editorial board prefers achieving housing abundance through deregulation, we recognize subsidized affordable units will be a part of the picture. So long as public funds are backing any type of housing, it should be done as cost-effectively as possible and maximizing the units brought to the market.