Why Is It So Expensive To Build A Home In California? Developer Fees Could Be One Reason

The residential “impact fees” that local governments charge developers are one reason it’s so expensive to build a home in California. They’re not only costly, they’re also unpredictable, lack transparency and can threaten a project’s viability, according to a new state-commissioned study by UC Berkeley’s Terner Center for Housing Innovation. 

The report concludes that, “[w]hile fees offer a flexible way to finance necessary infrastructure, overly burdensome fee programs can limit growth by impeding or disincentivizing new residential development, facilitate exclusion, and increase housing costs across the state.”

Researchers at the center worked with city planners in 10 different municipalities to gather fee schedules for typical apartment and housing projects.  

“And in many cases, that was very difficult information to obtain,” said David Garcia, the center’s policy director.

They also found the fees vary widely across the state. 

In Sacramento, for example, impact fees can total about $8,500 for a typical apartment unit, and $13,000 for a single family home, the study found. In the Bay Area suburb of Fremont, those costs were $22,000 for an apartment and $35,000 for a single family home. 

Cities and counties use impact fees to pay for the roads, schools, police and fire services needed for new communities. The fees are almost always passed on to the homebuyer in the form of a higher purchase or rental cost.

Garcia said the charges can also change unpredictably as a project moves forward. 

“Because of that lack of clarity, that can put a project in jeopardy, too and just raise the overall cost of housing,” Garcia said. “And so many times that can mean that projects simply don’t happen.”

The report comes as the state continues to struggle with an affordable housing crisis. Only 30 percent of California households that could afford the state’s median-priced home — now $608,000 — during the second quarter of this year, according to recent figures from the California Association of Realtors. That figure was down 2 percent from the first quarter, but up from 26 percent a year ago. 

In Sacramento County, 44 percent of households can afford the median-priced home, which was $385,000 during the second quarter. That share was unchanged from the first quarter. 

Andrew Kosydar, a legislative advocate for the California Building Industry Association, said the Terner study examined just one narrow set of fees developers must pay. He said there are many more. 

“Fees contribute to the housing crisis that we have here in the state of California. The higher the fees are on new houses, the more that it drives those prices up and the more expensive it becomes for people who want to buy a home,” Kosydar said. 

A 2018 Terner Center study found that impact fees, when combined with service fees, “can amount to anywhere from 6 percent to 18 percent of the median price of a new home depending on location.”

Its study this month on impact fees recommends that all local governments be required to clearly present the cost of the fees on their websites, and publish the studies that back them up.

It also says jurisdictions should confirm the availability of their fee schedules in annual reports and provide public guidance on how to calculate development fees. 

The study notes that cities and counties have limited ways they can raise revenue for needed community infrastructure due to state-imposed policies that restrict local taxes such as Proposition 13. Local governments have increasingly relied on impact fees to pay for these needs in recent decades. 

The report was required under Assembly Bill 879. That 2017 legislation, by Asm. Tim Grayson, D-Concord, focused on impact fee reforms. 

Correction: A previous version of this story misidentified the Assembly Bill that required the report. It was Assembly Bill 879.