These Fees Make Affordable Housing More Expensive. Developers Want to Slash Them

Affordable housing developers in California are met with a lot of demands: pay for sidewalks and extra sewer lines, make sure there’s money for parks and art projects, don’t forget schools and subways.

All those demands add up — contributing to about $20,000 per apartment, on average, or $2 million for a 100-unit building, according to a new report from UC Berkeley’s Terner Center for Housing Innovation.

The report, released Thursday, looked at some 700 projects across the state built between 2020 and 2023 and found those fees totaled a whopping $1.2 billion — money the report’s author, Ben Metcalf, said could be better spent building more housing.

“If we could have instead reinvested that $1.2 billion into new affordable housing, that could have been 5,000 families that would be off the streets or stably housed or in a much better condition,” said Metcalf, who is also the managing director for the center. “There’s a trade-off that we’re making.”

The findings come as the state and federal government look for ways to spur housing construction and make it cheaper to build and buy homes.

President Donald Trump has aggressively pushed the Federal Reserve to lower interest rates, which he claimed would make homeownership more affordable. And during his State of the State address earlier this month, Gov. Gavin Newsom announced he would focus on the cost of construction during his final term.

But many of the biggest construction costs, including labor, material and — despite the president’s attempts — interest rates are virtually immovable. Experts say the fees local municipalities charge developers are one lever left to pull.

Pulling that lever, however, may be easier said than done. Known as “impact fees” or “developer fees,” the money helps fund infrastructure and municipal services cities argue are needed to support the new residents of the development, including schools, parks, streets, sewage, electricity and public art.

Apart from local bonds and sales tax measures, impact fees are one of the few ways local governments can generate tax revenue.

That’s largely a result of Prop 13, a landmark 1978 ballot measure that capped property taxes and limited how much they can increase each year.

Many cities have become increasingly hamstrung in raising revenues to pay for services, and they’re not eager to forgo the extra fees they say are necessary to maintain basic public facilities and services.

“We don’t make money on these fees,” said Jason Rhine, senior director of legislative affairs for the League of California Cities. “They literally go directly back to the services and facilities … not to support anything else.”

Indeed, the Terner Center’s report found that impact fees, on average, accounted for around 1% of cities’ total revenue. And many cities aren’t generating fee revenue on affordable housing at all because they’re not building any.

The report looked specifically at projects built using the Low Income Housing Tax Program (LIHTC), a federal effort to encourage affordable housing construction by awarding developers tax credits to offset construction costs.

Out of the 482 cities studied, a little more than half didn’t receive a single LIHTC award between 2020 and 2023.

Unlike market-rate housing, affordable housing developments are exempt from some impact fees. Still, the Terner Center’s report argues, a fee is a fee. And with affordable housing, it has to be covered by taxpayers.

Those fees can vary depending on the type of project and where it’s built. On average, family housing projects were charged around $24,000 in impact fees, while senior housing and housing for people with special needs were charged about $19,100 and $13,800, respectively.

Smaller, more suburban cities, where the project necessitated new infrastructure, such as roads and utility lines, tended to charge higher impact fees, while cities with larger populations usually charged lower fees.

“If the infrastructure doesn’t exist, you have to create that infrastructure,” Rhine said. “And since we’re limited in how we can charge or generate revenue to fund that infrastructure, it really falls on the development community.”

Developers said these fees don’t necessarily break a project, but they can shape what it looks like, what amenities are included and how quickly it can be built.

Nick Friend is the chief lending officer at Housing Trust Silicon Valley, a financial institution that provides loans for affordable housing projects across the Bay Area.

He said higher impact fees can affect the number of family-sized apartments versus studios and one-bedrooms in a development. It can also mean using cheaper building materials and reducing the amount of common space.

That can result in projects sometimes looking half-built with “spaces for amenities yet to come,” he said. “Spaces might be left empty, when they are imagined [to be], say, a playground or a landscape design feature or something.”

To avoid those compromises, some developers told KQED they try to work with cities to waive the fees or wait to pay them until tenants are ready to move in. The city of Palo Alto waived the impact fees for Mitchell Park Place, a recently completed affordable apartment building with 50 units, including some set aside for people with disabilities.

The waiver meant more than $3 million in cost savings for Eden Housing, the developer. “Most of the cities would like to build the housing, so they’d like to find a solution, particularly [for] affordable housing,” said Linda Mandolini, president and CEO of the nonprofit.

But some developers and housing activists argue there are other cities that impose hefty impact fees as a way to shut out development entirely.

The Housing Action Coalition recently announced it had sent a letter to the Manhattan Beach City Council and had complained to the state’s housing agency after the city proposed increasing its impact fees for multifamily housing by almost three times more per square foot than for single-family homes.

“Manhattan Beach can plan for infrastructure needs without adopting policies to deter the multifamily and below-market housing it is required to encourage [under state law],” Jesse Zwick, the coalition’s southern California director, wrote in the letter.

To spur housing construction and make sure cities can reach their state-mandated housing goals, lawmakers have recently passed laws aiming to lessen the burden of impact fees. The new rules require cities to provide an estimate of the fees early in the development process and allow certain types of projects to pay them once construction and inspections are complete.

Cities are under more scrutiny to approve and build housing as the state’s affordability crisis worsens. Developers argue that if it’s easier for them to build housing, the cities can meet their goals faster. But for many cities with already-tight budgets and few resources on hand, forgoing impact fees is not necessarily a win-win.

“Ideally, we’d have a state fund that would fund impact fees or development fees on behalf of affordable housing developers,” Rhine said. “Right now, the bit of the trade-off really is if a developer is not going to pay those fees, somebody’s going to go without a park or a library or a service.”