Why Do Impact Fees Vary So Much?
In a previous post, we talked about the various type of city fees for development and homebuilding projects. One of the fee categories we discussed was “impact” fees, which in theory are the payments for your project’s impact on the existing infrastructure. This infrastructure could include the water and sewer systems, school districts, streets, and other common facilities used by the public. These impact fees would in essence contribute to expanding the existing infrastructure to serve the new developments.
It seems that ever since the subprime mortgage era that spiked housing prices in the early 2000’s, cities and local jurisdictions saw the opportunity to charge higher and higher impact fees on these new developments. With the rising home prices, developers and builders acquiesced to these steep increases in fees – everyone was making so much money that no one wanted to take the time to fight the increases. But after the economic and housing recession started in 2007, these high impact fees are like the genie that can’t be put back in the bottle. And it is having some negative effects on land deals and development – but that’s another story for another time.
So why do the impact fees vary so much from city to city to county? First, I have seen where cities that are mostly built out never had any dramatic fee increases. The City of Los Angeles and other nearby suburbs never had a substantial amount of vacant land and larger developments during this subprime era, so I presume the city governments did not see a financial benefit from increased impact fees. I have found that the total impact fees in many of these built out cities is still in the neighborhood of $10,000 to $15,000 per home. And much of these fees are being charged by the local school districts, with the going rate at somewhere between $3.50 to $4.00 per livable foot. If you have an average house size of 2,500 square feet, school impact fees can be up to $10,000 per home, with the balance of city fees being quite reasonable.
But when you are in the cities and counties that had large pockets of growth, these impact fees can now range from $50,000 to $70,000 per home – and I have seen some cities have fees well above $100,000. The school fees tend to be similar, but now you have a sewer connection fee of $7,500 per home compared to $900 in the built-out cities. Water connection fees can be similar, and then you have community park fees at $6,000 per home. Add traffic, bridge, art-in-public-places, and other fees and you can get north of $50,000 in a hurry.
Sometime around 2004, I was involved in a land development in unincorporated Riverside County and the total impact fees amounted to around $24,000 per home. Two years later, that same county had fees totaling $66,000. When the bubble burst in 2007, home and land prices dropped significantly and even today there are land deals that are hard to put together because of the effect of impact fees.
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